Getting started
Your first rental, start to finish: what to buy, how to pay for it, and what each step really involves.
Most people who want to own a rental never buy one, and it is rarely the money that stops them. It is not knowing what happens next, who to call, or what could go wrong. This topic fills in those blanks.
Start with how investing in real estate actually begins, then walk your first purchase week by week. If you already know the kind of investor you want to be, pick a path and play it through: every path is a timeline of the real steps, with the decisions people get stuck on along the way.
Start here
- How to start investing in real estate
You do not need to know everything to start. You need one strategy that fits your money and your time, a way to judge a deal, and a cushion for what goes wrong.
- How to buy your first rental property
Most first rentals take three to five months from deciding to the first rent payment. Here is each step in order, what it costs, and what to do when it feels scary.
Investor paths
- Investor paths: choose your route
Pick a path, walk its timeline and make the calls a real deal asks of you.
Stories
- How real estate investors got started
Ask a room of landlords how they started and the same few stories come back. Here they are, paraphrased from investors' own accounts, with what each one teaches.
Financing the first deal
- Hard money loans
A hard money loan is fast, short and expensive on purpose. Here is how lenders size one, what it really costs, how the renovation money is paid, and how you get out of it.
Key terms
- Fixed vs adjustable rate
- A fixed rate never changes for the life of the loan. An adjustable rate (ARM) is fixed for an opening period, then resets on a schedule to an index plus a margin, within caps. ARMs usually start lower; a fixed rate buys certainty.
- 5/6 ARM
- Fixed for the first 5 years, then the rate adjusts every 6 months. Typical caps are 2/1/5: at most 2 points at the first reset, 1 at each reset after, 5 over the life of the loan. A 7/6 or 10/6 is the same idea with a longer fixed period.
- Interest-only (IO)
- For a set period, often 10 years on an investor loan, the payment covers interest only, so the balance does not go down. After that the loan amortizes over the years left, and the payment jumps. Investors use IO to raise monthly cash flow.
- Points
- One point is 1% of the loan amount, paid at closing. Discount points buy the rate down, each typically by about 0.25 to 0.5% (it varies); origination points pay the lender or broker. Points only pay off if the loan is kept long enough.
- LTV
- Loan-to-value. The loan divided by the property's value; on a purchase, the lower of the price and the appraised value. It is the main dial on risk and price: the lower it is, the better the rate and the more lenders will do the loan.
- PITI and PITIA
- The whole monthly housing payment: principal, interest, taxes and insurance, plus association (HOA) dues for PITIA. Investor lenders divide rent by PITIA, so taxes, insurance and HOA dues matter as much as the rate.
- Cap rate
- NOI divided by price: the return if the property were bought with all cash. A higher cap rate means more income per dollar, and usually more risk. Used to compare deals and to value income property.
- BRRRR
- Buy, rehab, rent, refinance, repeat: buy a property that needs work, fix it, rent it, then refinance at the new value to pull most of the cash back out for the next one. Usually a bridge loan followed by a DSCR loan.
- Promissory note
- The borrower's written promise to repay: the amount, rate, term, payment and what counts as a default. It is the debt itself; the mortgage or deed of trust is what ties it to the property.
- Mortgage vs deed of trust
- Both pledge the property as security for the note. A mortgage is between borrower and lender and usually needs a court to foreclose; a deed of trust adds a neutral trustee and usually allows a faster foreclosure without a court. The state decides which is used.