Property Loan Template: Fill & Download for Free

This is an excellent question that people really need to know more about.When we solve a problem, after a while, we tend to forget what solved the problem and go back to what we used to do that caused the thing to go over the cliff in the first place.That was the 2008 mortgage and financial crisis, as it forgot the lessons of the Great Depression.History up to the Great DepressionIn the 1920’s, when the economy was booming and it seemed like the party would never stop, banks lent out a ton of money on credit, with the presumption that all that money would be paid back and that there was sufficient collateral to cover it.Except, there wasn’t.One of the biggest assets that people might own that a bank could recover is real property. As Will Rogers once noted: “Buy land. They ain’t makin’ any more of the stuff.” Real property was something that pretty much always appreciated in value.Prior to the early 1900’s, most people didn’t own their own homes. Most people rented. Many lived in tenements and apartments in cities, or lived as tenants on farms in rural areas. Land speculators often bought what was left of the government land grants as the frontier closed.But, in the 1920’s, that began to change as banks felt more confident in lending credit for new construction. There were significant speculation bubbles. People bought property and built homes on future credit that wasn’t based on anything but hope.And as the stock market ticked ever higher and higher, banks bet on it. With the deposit money of their customers.And then the Stock Market Crash of 1929 hit.Banks that were significantly overleveraged and undercapitalized were hit hard. Many just failed, and those who had their deposits at banks that became insolvent just lost everything. There was no deposit insurance. If your bank went under, you were screwed out of your entire savings.And if you lost your job, that meant you also lost any means of continuing to pay back that home loan.Additionally, there were suddenly vast quantities of new construction for sale… that nobody could afford any longer. That drove down property values everywhere.Suddenly, your property that was worth $10,000 last year might now only be worth $5,000. But you might still owe $8,000 - what we call “underwater.” If you default or declare bankruptcy, the bank loses. And you’re out on the street.And then, what could the bank do with the house? How could they sell it? Nobody was buying. So, the bank suddenly has a ton of illiquid assets.More foreclosures in a neighborhood continues to lower the property values further, and the destructive cycle just ends up repeating itself.The Hoover administration tried economic protectionism. At the administration’s pushing, Congress passed the Smoot-Hawley Act of 1930, which imposed schedules of high tariffs on over twenty thousand types of imported goods, to protect American business, by golly.It backfired spectacularly and greatly exacerbated the worsening Depression.Weather conditions didn’t help. A severe drought ravaged the Midwest and Great Plains starting in 1930. Farmers had been using what in retrospect were poor farming practices, tearing down line fences and forest windbreaks and not planting cover crops for winters. The thin layer of good topsoil in the Great Plains turned to dust and became an ecological nightmare.Farms started going under as crops failed. The Smoot-Hawley tariffs only made things worse.Additionally, the money supply dried up. The banks that survived, like J.P. Morgan Chase, just turned off the credit spigot to stay afloat. They stopped lending. Why? Again: illiquid assets. The banks were holding on to all these properties and other assets that they couldn’t sell. And people didn’t trust the banks because so many had lost everything depositing their savings there. Because the banks couldn’t sell anything they had, and nobody would give them any cash, they didn’t have any money to give out.Part of the problem was the gold standard. Under the Federal Reserve Act, at least 40% of the money in circulation had to be backed by gold reserves held by the federal government. So, there was no modern tool of being able to print more money to help increase liquidity.On top of that, gold became more expensive. Mortgages often had clauses that allowed banks to demand repayment in gold because of the gold standard. By 1932, that resulted in a disparity in payment between the dollar and the value of gold that meant that if a debtor was forced to repay in gold, it could cost him as much as $1.69 for every dollar he owed. This led to more bankruptcies and foreclosures still.Because of the tariffs, the lack of money supply, the collapse of agriculture, and lack of consumer spending, rampant deflation initially set in. This made exported American goods increasingly more expensive for overseas importers, even where other nations had not instituted retaliatory tariffs of their own. Manufacturing began to collapse. The steel industry followed.And the Depression spiraled out of control.When Roosevelt took over from Hoover in 1932, the nation was becoming increasingly desperate.The New DealRoosevelt ran on a radical new idea that he called “The New Deal.” The premise was that the government would intervene in the economy and prop it up through deficit spending and government borrowing. The New Deal would create government programs to put people back to work and get people back to farming and building things, and that eventually, once people got back on their feet, the government could take those supports out.Various New Deal reforms were leveled at the financial sector to try to get the credit flowing again.One reform was put on the banks directly: the Glass-Steagall Act. One of the problems with the banking crisis was that banks could gamble with depositor’s money. The Glass-Steagall Act separated investment banks from commercial banks. Investment banks are gamblers. These deal with stock and bonds and venture capital and hedge funds and Wall Street. Commercial banks are the Savings and Loan where you put your nest egg. The Glass Steagall Act put a firewall between the two. The idea was that Wall Street could melt to the ground and Main Street wouldn’t go with it.Keep this in mind. It will be important later.Another was to protect depositors. Commercial banks would be required to pay into a new Federal Deposit Insurance Corporation: the FDIC, which would make sure that depositors would get paid back if the bank collapsed. That encouraged people to trust banks again. People would deposit their money, and banks could use that money to start giving out loans again.A third was to help reduce the risk of default on certain types of loans through surety agreements. Sureties had been around forever: they’re a promise to pay a debt if the original debtor defaults.The Federal government aimed these programs at home loans in particular, to try to reduce the homelessness problem. And so, in 1938 with the National Housing Act, the government formed the Federal National Mortgage Association, or FNMA. FNMA, or “Fannie Mae,” would buy the mortgages from the banks, who would continue to “service” the mortgages. From the perspective of the consumer, it looked just like their ordinary transaction: get a loan from the bank, pay the bank. The bank kept some money for “service fees,” and the Feds took over the loan, and importantly: the risk of default. This created a secondary market for mortgages for the first time in history.But Fannie would only buy that mortgage if it met certain criteria, such as debt to income ratios, term of the loan, and more. If banks wanted to make other loans, that was fine, but Fannie wouldn’t buy them.And the program basically worked. Banks started lending again. Credit slowly started to thaw out. Banks started getting more liquidity in their balance sheets. People started being able to buy homes again.After World War II, the housing market took off again, fueled in part by the GI Bill and a push for suburbanization and the creation of easily duplicated, cheap ranch houses on a standardized template.But in the background still driving things along was always Fannie Mae and the prime 30 year fixed-rate mortgage, which had become as much a part of the standardized American experience as baseball. Housing prices rose steadily home ownership became a stable part of the American economy. Virtually every person in the country could see a viable path to owning their own home.By the 1960’s, FNMA owned more than 90% of the residential mortgages in the United States and individual home ownership had risen to the highest levels ever recorded. This led to the greatest expansion of the middle class in history.So, of course, like all wildly successful government programs, we had to fix it.PrivatizationIn 1954, FNMA was semi-privatized into a public-private hybrid where the government owned the preferred stock (with better voting rights within the corporation,) and the public held the common stock (which gave dividends, but inferior voting rights).And in 1968, Fannie Mae was privatized entirely, with a small slice of it (known as Ginnie Mae) carved off to maintain Federal Housing Authority loans, Veterans Administration loans, and Farmer’s Home Administration mortgage insurance. Because Fannie Mae had a near monopoly on the secondary mortgage market, the government created the Federal Home Loan Mortgage Corporation to compete with it: Freddie Mac.By 1981, Fannie and Freddie were doing well as private companies, and Fannie came up with a great idea that had been done in limited settings: pass-through mortgage derivatives. They would bundle up various mortgages and sell them as a type of bond to investors. Investors loved the idea. The housing market had been extremely stable for nearly fifty years and offered a modest, but highly reliable return. And so the commercial home loan mortgage backed security was born.Keep this in mind. It will be important later.The Savings and Loan CrisisBy the early 1980’s, the economy had been stable for 30 years (more or less,) and thanks to the Glass-Steagall Act, commercial banks were doing okay even with the “stagflation” of the 1970’s. Home prices continued to rise about on par with wage growth.But one type of commercial banks, the Savings and Loan banks, wanted to do better than okay. S&L’s were the kind of bank in It’s a Wonderful Life. S&L’s were specifically singled out in federal legislation, like credit unions, for a single purpose: to promote and facilitate home ownership, small businesses, car loans, that sort of stuff.A business-friendly Congress agreed. They passed two laws in 1980 (signed by Jimmy Carter) and 1982 (Signed by Ronald Reagan) that allowed banks to offer a variety of new savings and lending options, including the Adjustable Rate Mortgage, and dramatically reduced the oversight of these banks.Adjustable rate mortgages work by locking in a fixed rate for a short term, and then after that initial term, the mortgage rate would re-adjust every additional term after that. If the prime interest rates set by the Federal Reserve stayed high, lenders would get hammered.But S&L’s had a fix in mind for consumers: just keep refinancing your home every time the first term is up. Home prices would just always continue to rise, right? They could collect closing costs every couple of years, and consumers remained essentially chained to them in debt with a steady stream of revenue that would always be secured if something happened. It was perfect.Keep these types of mortgages in mind. It will be important later.By the mid-1980’s, the lack of oversight allowed S&L’s to start making riskier and riskier decisions, offering certificates of deposit with wild interest rates, as much as eight to ten percent. They were exempted from FDIC oversight, while still keeping deposits federally insured (what could go wrong there, right?)And then the Federal Reserve, in an effort to reduce inflation, raised short-term interest rates, which sent ripple effects through these S&L’s, who had been made very vulnerable to that particular issue through these bad decisions, lack of appropriate capitalization, and overpromising depositors.By 1992, almost a third of savings and loan banks nationwide had collapsed.This crisis led to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), which put back some of the same oversights that had been taken off because people wanted to make more money, particularly better capitalization rules (which were tied to risk,) increased deposit insurance premiums and brought back some FDIC oversight, and reduced these banks’ portfolio caps in non-residential mortgages.Keep this in mind. It will be important later.The Repeal of Glass-SteagallRemember how back in the 30’s, in the midst of the Great Depression, we instituted that firewall between investment banks and commercial banks?Again, it worked so well, we had to fix it.Starting in the 1960’s, the federal regulators began to start to allow commercial banks to get back into the securities game again. The list was limited, and was supposed to stay in relatively safe stuff.This accelerated under Reagan’s policy of deregulation, and continued under Clinton in the 1990’s. By 1999, Bill Clinton declared that Glass-Steagall no longer served any meaningful purpose, and most people had declared it dead well before that. The law was officially repealed in 1999 with the Gramm-Leach-Bliley Act.Immediately, investment and commercial banks start merging again. Bear Stearns, Lehman Brothers, Citibank, all of these investment banks start buying out the commercial banks or merging.And there’s a culture difference between those.Remember: investment banks are gamblers. These are the Wall Street guys. They’re risk takers. They’re hedge fund managers. These are your Gordon Gekko type guys. Commercial banks are Main Street guys. They’re generally conservative, George Bailey types.And the investment banker culture won out over the course of the 2000’s. George Bailey starts snorting coke and putting on Ray Bans with a blazer and jeans.Sub-Prime, NINJA, and ARM LoansIn the early 1990’s, affordable housing started to become a greater and greater issue. George H.W. Bush signed legislation in late 1992 amending Fannie and Freddie’s charters to push them to make loans to people with lesser means than the traditional prime criteria. The Clinton Administration continued pushing Fannie and Freddie to accept more low and moderate income earners.That meant taking on riskier loans.The Clinton administration put rules in place in 2000 to curb predatory lending practices, and rules that disallowed those risky loans from counting towards their low-income targets.The Bush administration took those predatory lending rules off in 2004, and allowed those risky, “sub-prime” mortgages to count towards the low-income targets set by Housing and Urban Development.Remember those ARM mortgages?Heh, heh. This is getting long, and you probably glossed over that, didn’t you? I told you it was going to be important.Banks started making riskier and riskier loans, often those ARM loans. They could meet their HUD targets and make tons of money. And again: the gravy train was endless, right? The housing market had not lost value for over fifty years, even in the recessions of the 70’s and 80’s.So, they put more people in houses. Bigger houses. More expensive houses. The economy was doing good. New construction was hot. Contractors couldn’t build the McMansions fast enough.Banks started a race to the bottom with these sub-prime loans, getting all the way to NINJA loans: No Income, No Job, No Assets required. You’re a homeless person selling Etsy products out of your car? You’re already prequalified on a quarter-million subdivision home with a quarter-acre. Congratulations.As long as you could afford the payments, you were in.De-regulationIn the early 2000’s, the Bush administration wanted to keep the economy going. There was a low-level recession from March 2001 to November 2001 following the dot-com crash. The administration lifted a number of securities and financial sector oversight rules. One of those rules was about capitalization.Remember that? I told you that was going to be important.Capitalization requirements are how much reserve cash a bank needs to keep on hand to prevent collapse if something happens, against their liability sheets. Remember: that’s how banks got in trouble before the Great Depression and again right before the Savings and Loan Crisis. They took on too many liabilities and didn’t have enough capital to actually pay it all out.The Bush administration relaxed the rules on required capitalization and what assets could count as capital. Some of those assets turned out not to be very useful.Collateralized Debt Obligations and the Mortgage Backed SecurityRemember, back in 1981, when Fannie starts issuing those mortgage backed securities, re-selling them as bonds with a low, but reliable interest rate?That gets more complicated after 2004–2005 with the increased use of a financial tool called the collateralized debt obligation. Basically, a CDO is just a promise to pay investors in a sequence based on the cash flow from something the CDO invests in. The rate of return was tied to how risky the CDO was.In the 70’s and 80’s, CDOs were pretty safe, mundane things. They were basically like index funds; they invested in a lot of stuff and did okay. But by the mid-2000’s, CDOs were becoming riskier and riskier, while providing more and more reward. CDOs bought up mortgages like crazy, because they had increasingly higher interest rates as the subprime mortgages started taking off.But people were nervous about investing solely in these high-risk CDOs. And so, investment banks that bought up those mortgage-backed securities started to bundle together some high-risk mortgages with some regular, low-risk mortgages and promising that they were safer.And then some investment banks started to lie about how many of those high-risk mortgages were in them. Why? Again: the housing market was super-stable and always going up. Those loans only looked high-risk on paper, right? I mean, those debtors could always just keep refinancing every couple of years.So banks bought up those assets and added them to their capitalization sheets.You see it, right? You see the problem here? Not yet?Keep this in mind. It will be important in just a minute.The CollapseI remember being in college in the early 2000’s, and asking the loan officer at our local bank how some of the people I knew were making maybe $10–12 an hour could afford these massive homes and boats and jet skis and campers. My parents were teachers; they weren’t doing bad, but we couldn’t afford all that and I knew they were doing better than some of those people. The loan officer shook his head and said, “They can’t. They can afford the payments.”Some of those people didn’t have furniture in their homes. If they had a party, they rented furniture for a couple days. I’m serious. That was a thing. Many of them were in deep, crippling credit card debt, paying off the balances of one with another, and justifying it with the idea that it would be okay when the next raise kicked in.It was a classic speculation bubble.Then in late 2006–2007, that bubble burst.The housing market became oversupplied. People stopped buying the new construction and the existing homes as much. And home values started to drop.And suddenly, because home values plateaued and then dropped, so too did the little bit of equity that many of these purchasers, in debt up to their eyeballs, had in their homes. Without more equity, they couldn’t refinance. And because they could’t refinance, those ARM loans or other loans kicked in, and the interest rates on them skyrocketed.And suddenly, they couldn’t make the payments anymore.And then they went into default on their mortgages.Followed by foreclosure.And often bankruptcy.It turned into a vicious cycle. Once one or two neighbors end up losing their homes in foreclosure, it affects the property values of everyone else around those properties like a contagion. Healthier borrowers started to become impacted as property values declined and now they couldn’t refinance.In 2007, lenders foreclosed on 79% more homes than in 2006: 1.3 million foreclosures. In 2008, this skyrocketed another 81% still: 2.3 million. By August of 2008, nearly one in ten mortgages nationally were in default and foreclosure proceedings. By one year later, this had risen to over 14% nationally.The RecessionRemember, the financial sector had heavily invested in all of those housing market securities. They thought they were safe. They thought that the housing market would never go anywhere but up. They built their whole foundation on it.And they had relied on those securities to meet their capitalization requirements.Securities that suddenly turned out to be nearly worthless.Huge banks ran out of liquid cash almost immediately. This is what happened to Bear Stearns, Lehman Brothers, Goldman Sachs, Citibank, and more. They were suddenly holding on to billions upon billions of dollars of assets that were either worthless, or completely frozen. They couldn’t sell the bits of stuff that was even worth anything.And because their assets weren’t liquid, they didn’t have money to lend anymore.And that lack of credit is what grinds the economy to a halt.That impacted every sector of business in the United States. Which impacted every sector of business in the world. And that meant that businesses started having to lay people off because they couldn’t get the money to keep paying them.And then because those people lost their jobs, they started to default on their mortgages. Which rippled through the CDO market again.This was why it was so critical for the Federal Reserve to buy those toxic assets and provide the banks with liquid cash in their place. They had to get the credit flowing again to re-start the gears of the economy. Without it, we almost certainly would have seen a full repeat of the Great Depression.And that brings us to today.That’s the abbreviated, oversimplified explanation. It’s more complicated than this, and there’s other factors that contributed, but that’s kind of the main story in basic terms. That’s roughly how 10 million homes went into foreclosure.And we still haven’t fully recovered. Over twice as many people rent as opposed to own. Less than one-third of people who have lost a home in foreclosure in the last decade will be able to repurchase another again. Roughly 2/3ds of those people who lost their homes have so damaged their credit that they will never qualify again. Hundreds of thousands, if not millions more, were so emotionally traumatized by the experience that they simply refuse to go through it again.And that number of renters to owners is substantially higher for my generation, the Millenials, who have never seen any substantial portion of the post-2008 recovery. We still haven’t made up the wages that would allow us to save enough to purchase, even setting aside the massive increase in student debt we carry.75% of my generation wants to own a home. Less than 35% do.And, in case reading this wasn’t chilling enough for you, the present administration has been lifting some of the exact rules and regulations that were put into place after the 2008 collapse that were lifted in 2004 that were put in place after the 1980’s collapse after those were lifted. Because it worked so well the first two times.Mostly Standard Addendum and Disclaimer: read this before you comment.I welcome rational, reasoned debate on the merits with reliable, credible sources.But coming on here and calling me names, pissing and moaning about how biased I am, et cetera and BNBR violation and so forth, will result in a swift one-way frogmarch out the airlock. Doing the same to others will result in the same treatment.Essentially, act like an adult and don’t be a dick about it.Look, this is pretty oversimplified. Ph.D. theses have been written about this. I’m trying to make it at least remotely accessible to those with the patience to read it. Don’t be pedantic about it, please?Getting cute with me about my commenting rules and how my answer doesn’t follow my rules and blah, blah, whine, blah is getting old. Stay on topic or you’ll get to watch the debate from the outside.Same with whining about these rules and something something free speech and censorship.If you want to argue and you’re not sure how to not be a dick about it, just post a picture of a cute baby animal instead, all right? Your displeasure and disagreement will be duly noted. Pinkie swear.If you have to consider whether or not you’re over the line, the answer is most likely yes. I’ll just delete your comment and probably block you, and frankly, I won’t lose a minute of sleep over it.Debate responsibly.

My answer is real estate. I have reflected on my 10 years of experience to write about a structured process you should follow to succeed in this business. I am sharing lessons learned and warning signs. I hope this will be an inspiration to you.YOU MUST FOLLOW A STRUCTURED PROCESS TO BECOME GREAT AT INVESTING IN RENTAL PROPERTYInvesting in rental property starts with selecting the right piece of real estateThis sounds easy. There is a number of elements you need to consider when investing in rental property. Three key things here for starters: location, location, location. Some other things to consider are certain math you need to do. You also need to commit yourself to viewing a certain number of properties before you make an offer. Practice makes perfect.Location, location, locationFirst of all, if you choose a good location you will enhance your chances of finding a good tenant (you can read more on tenants later on in this text). Secondly, a good location is also a great way to manage a risk of your property decreasing in value. Finally, great location will also be a good argument when negotiating financing with your bank.Investing in rental property is numbers gameWhen you buy a home or flat for yourself and your family you will probably be more guided by emotions. When investing in rental property you absolutely must understand that this is all about numbers. To cut the long story short you need to make sure that every single investment decision will contribute positively to your cash flow. What do I mean by that? You will have certain expenses: mortgage, taxes, maintenance and repairs, and improvement. On the other hand, you will have rent paid by your tenants. If you are spending more than getting on a month by month basis than you have done something wrong.Viewing more properties increases your success rate in investing in rental propertyFinally, let me cast some light on a common mistake. People get so excited to start building their financial independence that they will buy the first, the second or the third property they have seen. Don't do it. Have a look at ten or twenty. Get some experience. Compare various options. Practice your numbers game.THE BIG DAY COMES. YOU ARE ABOUT TO PURCHASE REAL ESTATE. INVESTING IN RENTAL PROPERTY IS NOT A PLAN ANYMORE IT BECOMES REAL.You have followed a rigorous and time-consuming process to select your first rental property. You are now ready to purchase it and start investing in rental property. The key question that you need to answer: what is the best way to finance it to achieve the greatest results?The power of leverage when investing in rental propertyOne of the most powerful real estate investing tips is to use leverage. Financial institutions are more than happy to finance rental properties which means that you only need to put up some cash up front to become a landlord. Using leverage helps you achieve more in a shorter period. I have used leverage massively over the last ten years. It allowed me to grow significantly over time. I need to underline one thing here. Fast growth is great but before you decide to expand fast start slow and small. This is how you will learn what assets are all about. You will make mistakes. Everyone does. It is better to make a little mistake and learn a lesson than make a big mistake and be unable to recover from it for many years. Let me show you a couple of lessons learned so that you can avoid some mistakes on your way to financial independence.Lessons learned on leveraging when investing in rental propertiesFollow a golden rule o 20% down payment for your safety and better priceOne of the golden rules when investing in rental property is to pay 20% of your project in cash. There are at least two key reasons for that.First of all, this is for your own safety in case of real estate market prices go down. I know that salespeople like real estate developers and bankers will tell you that real estate prices always go up. We have seen in times and again that it is not necessarily the case.The second reason is, that financial institutions will be willing to give you a better price for financing if you show that you have some cash to be paid upfront. There is a mechanism in banking called scoring. Based on a number of demographical data, financial data and behavioral data banks calculate how much risk they will take when extending financing to you. The less the risk the better the price.Follow 20% rule when you are starting investing in rental properties. Buy five or ten units and you will know if you can relax that condition or stick to it on your journey to financial independence.Make sure you understand your debt to income ratioFinancial independence does not necessarily mean that you are debt free. One of the reasons is that there are different types of debt. Some debt may drag you down other can significantly accelerate your journey to financial independence. Irrespective of the type of debt you carry you need to always understand how much in percent your annual debt payments are in relation to your net income. You will probably not want to see this metric greater than 25% for your safety.I highly recommend that before you started investing in rental property you make all efforts to eliminate all bad debt that you carry. I am talking car lease payments, credit cards, cash loans, overdrafts and retail debt. The less bad debt you carry the better your debt to income ratio. More importantly, your scoring with financial institutions will rocket and again you will get a better price on your leveraged investment.Avoid toxic loans and shop around before you signBeware of toxic bank products when investing in rental property. Variable rate mortgages on sale are the greatest example. You will see ads, posters, and commercials with rates that are way below what competition charges. Believe me, I have been in banking for 15 years and know that if you get something cheap at the start there is a good chance you will pay for it later. You need to be especially cautious with variable rate financing that might be attractive for a year or two. But then when standard rates kick in you might be unpleasantly surprised. As a rule of thumb stick to fixed-rate financing when you start your journey with investing in rental property.Do not sign a loan agreement with the first bank that is willing to lend you the money. When you have 20% in cash and you followed my recommendation to cut on bad debt, all banks will want to lend you money. Get at least five offers. Compare interest rates. Compare additional conditions. Do they want to sell you insurance, bank account or any other product? Make sure you understand the total cost before you sign the best contract.YOU NOW OWN IT. INVESTING IN RENTAL PROPERTY DOES NOT FINISH WHEN YOU BUY. IT IS ONLY THE BEGINNING.Well done! You have selected and bought your first property. So far everything you considered in terms of return on investment was all in your excel file. It is the time to put your calculations and assumptions to the test. The only judge here is the free market. Potential tenants will prove you right or wrong in terms of setting rent. Setting the price is only a tip of an iceberg when it comes to rental property management. Here is a number of steps that you will typically need to make when investing in rental property. You can always consider hiring a professional property manager but that is a different story.Marketing your rental propertyYou will need to sell your property to potential customers. The rise of the Internet made it extremely easy to get thousands of clients using popular real estate sites. Make sure you have great pictures, add a video if you can. Attach a floor plan and do not forget to be as much descriptive in the ad as possible. You might want to showcase the benefits of location, transport links, the proximity of entertainment venues or any other thing that might interest your potential customer.Showing your rental property to potential clients and selecting the best customerPeople have started calling you and want to meet and have a look at the property. Make sure you are prepared. Have a copy of most important documents. Know costs that will typically be borne by the tenant. Understand your negotiation margin. Make sure you highlight the importance of taking a cash deposit in case of damage or lack of payments. Be frank with your clients. Also be cautious. Same as you did not start investing in rental property with the first piece of real estate you saw, same you do not want to let it to the first person that shows up at your door. You need to understand if they have a stable source of income. It is always great to get their references from previous places where they rented in order to avoid troublemakers.Contracting and handing off your property to clientsI used to teach contracting law to students at a university. The key thing I always repeated is that a well-written contract is the greatest tool to manage your risks. When investing in rental property your contract should be written by a lawyer, especially when this is your first rental property. Get a good template once and you will avoid a lot of headache along the way. Make sure that on top of the contract you always, let me repeat, always prepare a hand over report. This is where you need to make a detailed inventory of everything that is a part of your rental property. Listing items is not enough. Make sure you describe their technical conditions and take pictures. You will save yourself a lot of trouble when your tenant moves out and does not want to cover for things they broke or stole.Collecting rent, paying bills and other adminYou will get to understand that there is always some admin work when investing in rental property. You need to make sure that rent is paid and follow-up if it is not. There will be some payments that you will need to make, like taxes, insurance. You might want to inspect your property every quarter or so to see if there is no damage made and maybe have a short chat with neighbors. Other things might also come up. Be prepared.INVESTING IN RENTAL PROPERTY REQUIRES PREPARATIONLast but not least you need to understand how money works before you start investing in a rental property. This will require you to work on your financial IQ. The fact is that financial IQ is not something you are typically born with. Your financial intelligence needs to be trained and developed by yourself. Those people I know, who have succeeded in investing in a rental property, share some common characteristics. They all understand their budget – what comes in and what goes out. Debt is used only as leverage by them and they keep away from bad debt. They buy assets that give them cash which is used to buy more assets. More interestingly, they have not been born like that. I saw them develop over time. They have made a lot of mistakes but that have taken their lessons.Start today.An ultimate guide to kickstart your journey to financial independenceDo not forget to upvote this answer and follow me.

Starting a rental property business means first buying a property and then building resources to rent and maintain it.Investing in real estate and starting a rental property business attracts people looking for long-term equity in real estate with someone else paying the mortgage. Owning a property is the first step to being a rental property business owner. As attractive as this business is, the amount of money needed, the potential liabilities and the legal responsibilities are often overwhelming. Structure your early deals in a way to mitigate risk while getting more experience.Leverage Your Existing Home for FinancingIf you are looking for real estate to invest in, think about leveraging your own home first. You can do this in one of two ways: Use the equity in your home as a down payment for a new property, or simply rent out your existing home while you move into a new one.If you plan on staying in your home but want to tap the equity, you have a better chance of getting approved for a home equity loan compared to an investment property loan. Until you have rental experience, banks might give you less-favorable loan options on investments. If you plan on moving and want to rent out your home, you already have insight into the condition of the home and the desirability of the neighborhood. This makes it easier to rent.Over time, develop other financing options and business relationships so you can build a larger portfolio. This might start with an equity line on an existing rental and potentially include private investors.Join a Real Estate Investment ClubJust about every city has at least one real estate investment club. Join and meet people who are already running successful rental businesses. You might be able to partner with some, splitting costs and risks. Either way, you will gain valuable knowledge and learn from others' experiences by being part of the club. Most clubs also network property listings and have investor members seeking project partners.Understand Rehab and MaintenanceDepending on the condition of the home when you buy it, you might need to fix it up. Homes purchased through foreclosure or tax deed auctions are often distressed and must be fixed before you can rent them. Even homes in good condition have things break. If you aren't handy, develop relationships with good contractors and repair people. These are resources you can't live without, because you need to trust that people you send to your property will do the job well and not antagonize your renters.Learn How to RentThere are a vast majority of ways to rent a property. Some landlords specialize in underprivileged neighborhoods that get approved for Section 8 housing. Others rent homes and apartments to students in college towns. You might not want to deal with tenants who struggle financially or move annually and would prefer catering to urban families with dual incomes. That's fine, although there are never guarantees. Focus on rental properties in an area that attracts your ideal client.Set up a system for applications, credit checks and background screenings. Develop a rental agreement or find an online template resource. Talk to the local housing authority to understand the state laws and regulations. Landlords have obligations, as do tenants. Learn these to understand your rights, including how to evict someone legally if you need to.Run It Like a BusinessStart small with one property and grow. While this might not allow you to quit your day job, treat the rental property as a business. Establish a bank account specifically for the property, and keep track of income and expenses. Take classes and educate yourself so you can grow as a landlord. Speak with your tax adviser about what you can and can't deduct. If you are serious about making this a sustainable business, treat it as a business from day one. Build your network so you have the right resources as your business expands to more properties.