By: Kara Perez
Updated: September 27, 2019
Does HGTV have you ready to jump into owning properties, flipping homes, or just wanting to add more real estate to your investment portfolio? It’s understandable; home ownership is part of the American Dream. For generations, real estate investing has been touted as a fairly solid path to wealth.
But it often comes with a high price tag. Real estate investing is almost always more expensive to get started in than stock market investing, especially with the introduction of robo advisors to the investing world. You can get started investing with as little as $5 with some robo advisors. It’s hard to buy a house for $5 in the United States. Depending on where you love, rental properties are often excluded from first-time homebuyer programs and require the full 20% down before you can buy it.
Luckily, there are ways to save money when investing in rental real estate. If you’re looking to add a rental property to your portfolio but not break your bank account to do it, you’ve come to the right place.
Six Ways to Save Money When Investing in Rental Real Estate
1. DIY repairs
There are endless articles and videos available on the internet on how to fix things yourself. So, now is the best time to try your hand at do-it-yourself (DIY) repairs. You can watch a repairman fix something on YouTube and then invest in the materials and tools. Not paying for the labor will save you huge amounts of money. You can probably learn about pretty much everything from changing light fixtures to plumbing (if you’re feeling ambitious).
2. Skip Using an Agent
Real estate agents can be helpful when it comes to finding and buying a house. But is it necessary to use one? No, and not using one can save you thousands of dollars.
Real estate agents collect 6% of the sale price as their fee, which can really add up! To buy a rental property without one, follow these steps:
- Attend open houses in the areas you want to buy in.
- Make a list of mortgage lenders that will work with you, and interview them all.
- Research property data online.
- Look for “By Owner” sales to work totally independent of agents.
3. Buy With Someone Else
Buying property with another person has been done since the beginning of homeownership. Lots of people buy with their spouses or family members. But nowadays younger people are buying property with their friends.
Buying with someone else can mean that you have to contribute less to a down payment. It can also mean an expansion of where you can look to buy and what type of rental property you might be able and interested in buying.
4. Buy Turnkey
Buying properties that are move-in ready means you won’t have to put more money into the property after buying it. Repairs mean more money spent. If the down payment and closing costs for a rental property are stretching your budget, you don’t want to buy something that needs any work. A turnkey property means that you’re likely to have renters in soon after you close. And that way, you can begin to save up for any house repairs or renovations you want to make in the future.
5. List the Property Online to Get an Idea of Renters
Good renters are worth their weight in gold. Bad renters… well, they can cost you a lot of money in repairs or legal fees. Even before you close on the property, list it on sites like Craigslist under a few different rental prices. This will give you an idea of who will bite at which prices. Make a high-price listing, a market-value listing, and a break-even listing, and see which one gets the most play with potential renters. This will give you an idea of both who can potentially be living in your place and how much they are willing to pay to live there.
6. Take Advantage of Government Programs
Some programs might help you buy properties, but what’s available will depend on where you live and who you are. Low-income investors may benefit from national programs for buying a rental property. And there are lots of programs to help first-time homebuyers. You need to occupy the home to qualify for these programs. But you could put something like a tiny home or trailer on the property and rent it out to earn some extra cash. These types of programs can be a lot of help when it comes to the amount of money you need to save to get into real estate.
Bonus: Make a Financial Plan for Your Rental
While this step may not exactly help you save money, it will most likely help you earn more money. Don’t buy rental property just because someone told you it was a good idea or an article you read promised that you’d become a millionaire through real estate. Do it because it’s something you’re interested in and something that you have a plan to profit from. That means sitting down and understanding what your costs are as the buyer and then the landlord (think property taxes and repairs), how much you can charge in rent, how much the mortgage is relative to the rent you charge, and how long you want to own the property.
These thoughts just scratch the top of making a plan to invest in rental property, so take the time to sit down and create a plan of action that makes sense for you.
The Bottom Line
Buying rental properties can be a great financial decision — or it can be a disaster. Before you buy any property, do lots of research and crunch the numbers. Then crunch your numbers again, with a 15% increase on the costs. It’s a law of the universe that something will come up that you weren’t expecting, and that will cost you money. (Again, see any HGTV show for proof positive!)
Can you still afford that property if it costs 15% more? Does it still make a monthly profit if the property taxes go up by 7% next year? It’s impossible to predict what exactly will happen to your finances or the housing market at large, but understanding several different financial scenarios will help you make a financially sound decision. Being prepared for change is the best plan.
Do your research and understand your rental property goals. This will help you find a rental property that makes the most sense and develop the rental plan that makes the most money.