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Tips for buying your first rental investment!

Owning a rental investment is a long-term project with a minimum timeline of five to ten years. It is a tangible asset and cannot be liquidated overnight. It will provide with a steady stream of passive income but requires you to be knowledgeable about tenant and landlord laws, financing, leasing and property management. Before you start your investment search, check to make sure your financing is in place.

One way to compare multiple investment property’s expected rate of return is to use the CAP rate. This method is independent of the financing method and is basically the net operating income divided by the offer price.
CAP rates can range from 4% to 12%. A high cost location with high demand will tend to have lower cap rates (lower risk), where as a rural neighborhood might have a lower demand and higher cap rate.

Other items to consider include future property appreciation, future forecast of rent and risk tolerance.

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