Most people who buy their first fare property are wildly weak, not the way they think.

All you can have bicker Real estate Podcast you want, but if your financial foundation is unstable, the whole thing can bend. This is scott trench warning from biggerpockets Bring for “The Money Gai Show”, Where he placed a case to jump into real estate, as it is trendy or “passive”.

Read further: 10 best place to buy a short -term rental property to earn passive income in 2025

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Before you make your first down payment, one thing you need is completely: a cushion that can actually take weight.

See also The easiest and difficult ways to invest in real estate,

Build a strong financial foundation

Before thinking about visiting properties or calculating your future cash flow, you need a healthy margin that you do and what you spend. Not just enough to scream, but Real breathing roomTrench called it “propagation”, and if there are no thousand dollars left after taxes every month, then you are not ready.

It may look rigid, but it is reality. Because the roofs in the cave, the pipes burst, the furnaces die in the middle of the winter and will sometimes refuse to pay the tenants. If you have an unexpected expense away from not having anything in your bank account, a rental property will not fix it; It will make it worse.

Trench argued that Real estate investment Must follow, not anterior, a solid financial basis, which includes emergency reserves, a stable income and a lifestyle that does not eat every percentage you have made.

You do not need to be rich, but you need to be stable (and boring consistent). This type of foundation prevents a rent from becoming a liability.

Be aware: 7 housing markets where household prices may fall

Why Helox and Risky Leverage are red flags

Some investors consider the equity of their home as an ATM, pull out Home equity line To fund your first fare. The trench feels that this is a mistake. “I have a large pet, when people take out a helke on their primary to buy rental property,” he said.

Why? Because that loan is not independent. Trench reported that more than five years ago, more than five years ago. Sure, the cash flow from the rent may be slightly, but is not enough to cover it. Instead of generating income, property now draws money from your life every month.

In fact, according to FinaraExcluding a HELOC to invest is included only compared to investing, as you are
“With a great condition that investment will increase enough for you to realize the profit after returning your loan principal, interest and other loans and investment-related costs.”

Leverage can be a useful tool, but only when the foundation is rock-solid. Otherwise, you are stacking the risk at the top of the risk and hoping that the market will remain strong.

Where you can start, but plan to upgrade

Not everyone can afford $ 500,000 turnkey rental in a great school district.

Trench said, “There is no option to buy a person who is starting to make just $ 75,000 per year … in the $ 500,000-Plus range,” Trench said. This does not mean that you cannot invest at all; This means that you need to start small with low cost property.

But this is a step, not the final goal.

These properties can come up with more hands management, DIY repair and tenant headache. They can work, but the trench suggested thinking about long periods. The plan should be gradually to trade: low repair, more stable tenant, better neighborhood.

In short, use it to motion, then move towards the qualities that make your life easier, not difficult.

Become local

If you can buy in your city or somewhere you know well, do it. Trench said that local investment gives you better control, less surprise and less dependence on strangers to manage your assets.

Out-off-state deals can work, but only when you are serious about scaling and committed to forming a reliable team on the ground.

final thoughts

Trench is not trying to scare anyone from real estate; He made a case just to open his eyes and Your finance in orderA solid cushion, smart use of leverage, realistic property options and a long-term mentality are not attractive, but those who separate different sustainable investment from expensive regrets.

If you are serious Construction money Through the real estate, start slow, be local if you can and make sure that every step strengthen your financial leg instead of moving it.

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Scott Trench: Do not buy rental property until you have this financial cushion

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