5 Tips for a Low Stress First Rental Property Investment 5 Tips for a Low Stress First Rental Property Inve | Page 5

Tip #4: Get the Right Financing & Cash Flow
FR
You need to know all of your costs, including estimating repairs and other maintenance costs. But, the mortgage is
going to be your largest cash outlay, so it is your most important cost consideration. You’ll need to put 20% down
or more in most cases. For a rental unit you may also pay a slightly higher mortgage interest rate. A great credit
history helps in this regard.
Get a firm handle on all of your costs, then see what your mortgage payment with taxes and insurance escrowed
will be. Let’s use an example of a $150,000 home with a $32,500 down payment and closing costs. If you can
manage to clear even $250/month over cash out of pocket, your return on the actual cash invested is going to be
around 9%.
Tip #5: Lock in Equity at the Closing Table
NEVER buy at retail market value. If you can’t get the home at a 10-20% discount to its current market value, don’t
do the deal. You want to leave the closing table with that equity as either future profit or a cushion should you
have to sell before your initially planned liquidation date.
If you’re going to work with a wholesaler who you may meet at a local investment club, be clear that you’ll want to
see their valuation calcs and you’ll check them with your own. You give them your requirement. If it’s 15% below
market value, then they will know what they have to deliver.
5