Real estate presents many with the ability to generate positive cash flow and create a financially free lifestyle that many would dream to have. Buying long-term rental properties is a sure-fire way to generate long term generational wealth. Every month, you could potentially be receiving checks right to your mailbox that can pay for all your living expenses plus more. Rental investments are easier to get into than flipping a property and are a good place for many beginners to start. Here are several tips to begin the process of buying your first rental property.

House Hacking 

Does the idea of living for free while you increase your net worth each month sound good to you? With house hacking, this is certainly possible and one of the easiest ways that a beginner can get into real estate rental investing. Essentially, house hacking means that you purchase a 1-4 unit property, and you either rent by the room or rent out the other units depending on what type of property you buy while you live in the other room or unit. Your tenants are paying you to rent each month which should cover the cost of your expenses for living in that home. In some cases, you can even profit a couple of hundred dollars depending on how good your deal is. The reason why this strategy is so good for beginners is that you are allowed to buy a home with an FHA loan which only requires a 3 ½ percent down payment on a home. On a 100,000 dollar home, that’s effectively only $3,500. The rules are that you have to live in the property for at least one year, but once you move out after a year, your property can begin cash flowing positively. While you are there, you should aim to at least break even on your expenses for the first year.

Cash on Cash Return 

Calculating your return is a big part of choosing which property you should buy. You should not just pick an ultra-luxury condo and assume because it’s high-end that you’re going to make money on it. You must understand what your rate of return is on your investment. One way to do that is by calculating your cash on cash return. You do this by multiplying your net profit by 12 months and then dividing by the money you put into the deal. An example of this is $500 per month net profit after expenses times 12 months equals $6,000. $6,000 divided by the money you put into the deal which is $50,000 equals a 12% cash on cash return. You must decide what is a good return to aim for. Some markets yield over 20% while others are as low as 5%. Most investors look for an average of 10% return cash on cash. This is how you can quickly calculate whether the deal is worth it to you.

Using these two tips, you can research and figure out how you can get involved in rental property investing. Here at Real Success, we suggest the best move is to educate yourself first and listen to the experts. Then you can craft an approach that best works for your situation and market.