How to get your first investment property

Historically real estate is one of the safest investment vehicles over the long term. Since the 1990’s, the median US home has nearly quadrupled in value and doubled in the last 10 years.

Real estate as an investment also has a strength as a physical asset that has intrinsic value as a place to live or rent out for income. Mortgages also allow homeowners access to insane leverage (up to 100% financing) and allows the homeowner to keep all gains assuming the mortgage terms are met, usually a fixed rate 30 year note.

So with prices skyhigh and intimidating interest rates how do you get in your first investment property?

The most important part of a successful rental property is cash flow. Monthly expenses like the mortgage, insurance, HOA, maintenance and vacancies need to be lower than the incoming rents.

Here are 3 effective ways to get rental properties:


Buy a home, duplex or fourplex with a 30 year fixed rate mortgage. Rent out rooms, extra space, part of the land or garage in order to meet the monthly payment. This method is especially useful for a young professional ready for their first home but not ready to foot the whole bill themselves and don’t mind having roommates:

Example: 24 year old John just graduated college and landed his first job as a school teacher in Hurricane. He buys a 4 bedroom twin rambler with a 0-down payment program at current market rates (approx 5.6%) for $380,000 and starts a mortgage (PM&I) for approximately $2,300 a month. John needs to cover the $2350 mortgage, an HOA of $190 but won’t have to worry about roof maintenance, only a small condo insurance bill ($20) a month but should save away a few hundred dollars a month for a rainy day fund. Utilities will be shared among tenants. He rents the Master with a garage space for $750 a month, another bedroom with a second garage space for $650, a 3rd bedroom for $600 and finally uses the last bedroom himself needing to cover just $550, a portion of the utilities and a few hundred in the savings fund. As soon as the 1 year mark he can move out and allow a tenant to take his place for cash-flowing rental property, also allowing him flexibility to move jobs if needed or get another househacked property.


Subject property:

Churn and Burn

Once you have a family, househacking in a shared space doesn’t sound so fun, but there is still a way to get a rental property with very little startup capital. An individual may buy a home with as little as 5% down (or 0% down for first time homebuyer or rural loans), live in it for minimum of 12 months and at that point, buy another property, using a future lease on the 1st home to help for qualification and making that 2nd property affordable. This method can be used rinse and repeat every 12 months if desired.

Example: Jenny and John are married and buy a 3 bedroom condo with 5% down. They live in it for a year and decide they would like to upgrade to a townhouse and keep their condo as a rental property. They get a preapproval using a rental lease on the condo that will start a few weeks after they move out and buy a townhouse in the meantime. They close on the townhouse, move over and their tenants start paying rent. A year later they repeat the process when they upgrade to a single family home.


Buy as a rental property.

This method requires a 20% down payment in cash so it is much more difficult for the average person but this method allows an investor to buy a property and immediately lease it out. A good rental will bring at least $500 a month in rent over the monthly mortgage and maintenance expenses. Homeowners having bought before 2020 might consider tapping equity from their home through a HELOC or cash out refinance to allow them to buy a rental property with 20% down.

Example: Jenny and John bought a house in 2018 and are sitting on a large pile of equity in their primary residence. They decide to do a cash out refinance and now have a $80,000 in cash. Their son is on his way up to BYU next year so they decide to buy a rental property in Provo now and immediately rent it out with plans that he’ll live and manage it while there. Purchase Price: $404,000 Downpayment: $80,000 Monthly Mortgage: $1990, HOA: $85 Expected rents (room-by-room): $2800 monthly (Master bedroom, with own bathroom $800, Entire basement with own bathroom $800, 2 standard bedrooms at $600 each) Monthly cash flow: +$725 Subject property:


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