Today I’m going to share with you the step-by-step process for buying your 1st rental property. But 1st, let me explain why investing in rental properties is financially a good decision, risk-tolerant, and makes money.
Number 1. When you buy the right rental property, you’ll get a profit from it every single month, which is called cash flow. When money is flowing into your business every single month from your rental property you have a positive cash flow, which allows you to build your savings, pay off debts, and do more of the things you want to do.
Number 2. When you buy real estate, you get to use a loan, which means you don’t have to have all the money upfront to buy it. Sometimes, you can even do it for as low as 0.00 dollars down. The nice thing is, over time the loan is paid off by the tenants, so in the beginning, you might owe 200,000 dollars, but in 15-20 years the loan is going to be paid off and your property is going to have increased in value significantly.
Number 3. Overtime rental properties appreciate in value, which means that while your tenants are paying off the mortgage your property is going up in value. There will be occasional ups and downs, but over the long-haul real estate has been proven by history to always increase in value significantly.
Number 4. There are many tax benefits to owning rental properties. I won’t bore you with all the details, but trust me, rental properties are great ways to help you with your taxes. Sometimes you can pay almost no taxes on the money that you made from your rental properties if you’re smart. Making $100,000 from rental properties is taxed a lot different than making that much money from a job because you’ll keep a whole lot more of it. And as always, please consult your CPA.
Now that you’re convinced that rental properties are great investments let’s go through the steps to buy one.
Step 1. Determine your market. 1ST, you got to find out where you’re going to invest. You need to decide on one place, and it would be preferable to find your rental property locally, or at least within an hour of where you live. Do some searching on sites like Realtor.com and start looking at different properties to see what different price ranges look like. I suggest that you connect with other rental property owners in your area so you can see what they’re buying. Find out what works and do that. Once you have your location and price range decided, it’s time for step number 2.
Step 2. Get pre-approved. For your 1st deal, a bank or a local lender is going to be the best way to finance your real estate deal. They typically require 20% down, but it can sometimes be more for a rental property. If you’re willing to live in the property 1st, for a year, then you can the percentage down to as low as 3% down or 0% if you’re a VA loan. If you don’t have that much money you might try networking with other real estate investors in your area. If you’ve found a good deal you might get one of them to partner with you on a deal. So, now you’ve gotten pre-approved from a lender, and you know where you’re going to buy, so are you ready to buy, which brings us to step number 3.
Step 3. Learn how to analyze properties. Knowing how to analyze a rental property is, I believe the greatest skill a real estate investor can have. The key to this is understanding the actual income that can be produced from the potential property. Talk to a local property management company when you find a home you’re interested in and find out what a property like the one you’re interested in would rent for. Then, investigate the expenses you’re going to have every single month. This is tricky and yet asking your real estate agent the right questions will give you all the answers you need. You need to know answers to questions like, how much will insurance cost, and how much will utilities cost, both of which can be answered by making a few phone calls. You want to look at the monthly cash flow, and the potential return your money will make in the 1st year, compared to how much you invested in the property. You want to shoot for a 10% return on your investment, which is considered a good return for rental properties.
Step 4. Shopping for properties. You need to start looking at properties and trying to determine, based on the numbers, what could work for you. I always recommend that you use a real estate agent, preferably one that understands the investment side of real estate. Have them set you up with automatic emails that will notify you whenever the kind of properties you’re looking for in the area hit the market. Then, once you find properties you like you can have the real estate agent show you all those properties so you can see them in person prior to making a decision on whether or not to make an offer.
Step 5. Make an offer. Your real estate agent is going to help you immensely with this, it’s a complicated process and you want to do it, quickly and intelligently. You might get a few offers rejected, but it's ok. Real Estate is a numbers game and over time you will get a good deal. When you do get your property under contract, you’re going to have to pay what’s called earnest money, which is usually around 1% of the purchase price, so on a 100,000 property, it will be around 1,000 bucks. The 1,000 dollars promises that you’re serious about buying the home. The money is typically refundable as long as you buy the property, or your back out for a legitimate reason.
Step 6. Due diligence. Due Diligence is all the steps you do between signing the contract and closing the deal. The 1st step in this process is to schedule an inspection of the property. Your real estate agent will have a good recommendation, so ask them who you should use. The agent can help you pick a title company, which will do the closing. If you’re property already has a tenant in it, I recommend that you verify that the rental amount that is being stated is being received. You’ll need to find an insurance company, sign documents, and bring your down payment.
Step 7. You may have to manage the property. The best deal in the world can be destroyed if you don’t manage the property correctly. You’ll need to decide if you’re going to use a professional property manager, which usually charges around 10% of the monthly rent for their ongoing fee. The property manager can be great, but keep in mind it doesn’t completely let you off the hook, because the truth is nobody will ever care about your property at the same level you do, no matter what you’re paying them. On the other hand, if you decide to manage the property yourself, you will save money doing it, but managing tenants will require consistency, hard work, and dedication.
I’m an expert on real estate investing and I can help you if you’re interested in buying rental properties. Maybe you’re not ready to buy a rental property yet, but you’d like to set up a meeting with me to discuss buying one in the future at some point, and if so, I’d love to meet with you. I want to be your real estate agent for life and help you with all your real estate questions and goals.
I’m always here for you if you need me and I look forward to meeting you. - Lainie
Call me - 806-928-4453
NOTE-If you’re planning on selling and are in the market for a top agent to make it happen, I would love to help!
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Lainie Eilenberger, REALTOR
Key and Slate Real Estate Group
Keller Williams Realty
Licensed Realtor in Texas