When is it reasonable to begin searching for rental properties?

Question

I am 23 years old and just finished my professional baseball career. I played D1 baseball in college and assumed I was going to play for a while. My plans/goals changed so I retired and started my first small business around 6 months ago(business isn't related to REI). I began looking into real estate investing around that time and I made it a goal of mine to own a single family property within 2 years of starting my business.

It got me thinking, at what point is it reasonable to start looking into rental properties? I was discussing my goals with my parents and they said I should have at least a years worth of income to even begin talking with lenders or agents. The real estate gurus on the socials say that you can get into a property easy, but I'm not sure what is good info!

Trying to learn as much as I can, and any info would be greatly appreciated!

Thank you!

Taz Zettergren · Answer

@Jaden Fein congratulations on the career and starting your own business! I played D1 football but wasn't talented enough to make it to the big leagues. It was a tough transition for me going into the working world since ball was life for so long but hopefully it hasn't been too rough on you.

I started out buying a primary and renting the rooms out to my friends so I was essentially living for free while I did renovations to the porperty bringing it up to current standards. Once I finished the renovations, I was able to refinance the property so I started venturing out into buying rentals.

It's never too early to start, as young as we are there's too much upside to be missing out on. I will say is take your time, continue to ask a lot of questions and don't be afraid to say no.

Feel free to reach out if you'd like to connect. Best of luck investing!

Mackaylee Beach · Answer

Congratulations on starting your real estate journey! To ensure success, I would recommend outlining your goals and having a clear, long-term plan in mind.

Sam McCormack · Answer

Having 6 months of fallback is what I hear a lot, and what I live by

Peter W. · Answer

Looking at actual properties online: about 6 months before you are ready to buy. You’ll need some time running number (forward looking for IRR) and backwards looking for predicting appreciation and sale price.

When are you ready to buy? Assuming W2 income (I know not correct) and single family home.

When you have enough for a downpayment and closing costs + another 10,000 as reserves.

Free cash flow from your main source of income (minus loving expenses) where you could cover PITI with a marginal degree of belt tightening. Essentially you’ll want to be able to “live poor” for a couple of months in case of vacancy or need to rebuild your reserves due to expenses.

With the variation you’ll see in cash flow from your business you will want some additional cushion in reserves or cash flow. A quad or duplex (non house hack) probably needs less cushion on cash flow as you probably won’t have major repairs or vacancies at the same time.

I haven’t thought about house hacking because I wasn’t even considering it.

Michael Smythe · Answer

You should start looking at properties and running your own numbers, to:

1) Expand your investment knowledge

2) Identify 2-3 possible NEIGHBORHOODS (not cities) to invest in.

You should be able to get the a point where you know within minutes if a new property on the market is a good "deal" or not.

Then when you are ready to buy, you'll have the knowledge to make better decisions INSTEAD of relying on so called "experts".

Lucia Rushton · Answer

Hi Jaden,

it's alot more than that. Happy to have a conversation with you.

Jay Thomas · Answer

Your parents' advice about having a year's worth of income saved up before engaging with lenders or agents is spot on. This financial cushion enhances your profile as a borrower, making you more appealing to lenders who generally seek a debt-to-income ratio of 36% or less. Alongside financial preparedness, a solid grasp of your local real estate market is crucial. Understand the rental property landscape, rates, and ownership costs. Develop a management plan, either personally or through a property manager. For a solid start in real estate investing, educate yourself through books, articles, and seminars. Collaborate with a specialized real estate agent to find properties meeting your criteria. Be cautious with advice from social media gurus, critically evaluating their motives. Start small, considering single-family homes or duplexes, and exercise patience in finding the right property at the right price – rushing is rarely beneficial in real estate investing.

Jessie Dillon · Answer

there are tons of lenders that don't need you to have 2y of self employment income on the books, and tons of RE investing strategies that don't need you to have provable personal income at ALL. so, if you've identified your strategy, location, team players, buy box, and where the money's coming from... and you've done your homework and have been practicing underwriting deals most days... why wait?

Tatum Littleton · Answer

Hey Jaden, glad you are here and asking the question... some would be too uncomfortable asking so good on you!

I would agree with AJ that it isn't ever too early to start looking. I would encourage you to do research multiple deals a week in different parts of the country. Find where you personally want to be and hone into that region. You will hear mostly that house hacking is the way to go starting out, which I would agree with as well. Save up as much as you can where you are now look into the numbers you are running and find out what makes sense for yourself and your business, maybe it's in Texas, maybe it's not.

I think that is a very doable and reasonable goal, maybe possibly even sooner depending on how you are saving. As I already mentioned, running numbers and seeing what could and couldn't work will answer some questions off the bat (no pun intended but that works LOL). Continue educating yourself and using BP forums! I would be happy to connect and discuss your goals and the business you started!

Keep up the hard work!

AJ Exner · Answer

Hey Jaden,

Congrats on a new stage of life! I used to play baseball too (DII and got hurt Soph year; so MUCH easier transition) but I hope you find that this new phase is just as, if not more fulfilling.

I don't think it is ever too early to at least start looking, but having some reserves, or money to put down is going to be one of the most important parts. The toughest property is usually the first, so figuring out what market you want to invest in, and what type of investment strategy you want to function in (BRRRR, Subto, Buy and hold, etc.) is going to be important as well.

You'll also want to figure out how much risk you want to take on with these deals. Having a year of savings before you start is one thing, but I know clients who just have some reserves and are operating through that. It all goes with your strategy and how much risk you are willing to take on.

But don't underestimate the difficulty of finding the 'right' property either. Depending on the market, it can be VERY competitive, so familiarizing yourself with the types of deals and areas you want to get in will be a great start.

I hope that helps!

When is it reasonable to begin searching for rental properties?

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