Six Easy Steps Towards Buying Your First Investment Property
Finding and purchasing your first investment property is intimidating. I know. It took me years to get over the fear and actually take the first step.
But it doesn’t have to be!
The reason it seems so inconceivable is because it’s such a large concept to grasp. Where do you start? What’s the first step? What if I fail?
Well I’m here to tell you that you can do it and there are six easy steps you can take to get you closer to buying your first real estate investment property.
Before we dive in, I should preface that I’m assuming you already have the finances needed for this purchase. By that I mean, you already have enough for the down payment (whether that be 3.5% for an FHA loan of 20%-25% for a conventional loan) and your credit score is in good shape.
Of course, real estate allows for some flexibility and you can certainly buy real estate with no or low money down and a not so stellar credit score. But that is an area I’m not so well versed in. So, if you’re still struggling coming up with the down payment, add this book by Brandon Turner to your reading list.
Step 1: Educate
Education is the key to success in real estate. There is a huge learning curve when investing in rental properties but you can ease that curve by arming yourself with enough knowledge. Especially with all of the free information on the internet.
There’s no excuse. And if you’re truly into real estate, this will be the fun part. If you have to force yourself to learn about the topic, this may not be the best path for you.
Whether you’re a reader or not, there are so many ways to educate yourself.
- The Lifetime Cash Flow Through Real Estate Podcast
- Epic Real Estate Investing
- Cardone Zone
Real Estate Investing Groups
- Local meetups and associations host super educational seminars, conferences and guest speakers. Find one near by and drop in.
You’ll notice I link to BiggerPockets a lot. And that’s because it’s a great resource. Heck, leave this site right now and just go straight there.
Wait no, don’t do that. But open a new tab and go there after finishing this first. =]
Step 2: Practice
Like any other skill, practice makes perfect. You wouldn’t ride down a black diamond trail if you’ve never skied before so how can you decide if a property is a good deal or not if you haven’t analysed one before?
Wake up every morning, hop on a listing website like realtor.com, and analyse 5 deals a day. They don’t have to be in your target market. They can even be on the other side of the country. Just go through the process of assessing market rents, researching tax information, and ultimately finding out if the listing is a good deal. There is a great buy and hold calculator on BiggerPockets. (I told you I liked them.) It ‘s an easy to use, fill in the blank type calculation.
Step 3: Organize Funds
Getting a pre-approval letter for an investment property is somewhat difficult because the loan amount depends on many factors such as potential rents and taxes. So I wouldn’t say that you must have a lender and letter lined up at this point. But you do need the cash and make sure it’s liquid and easily accessible.
With our first investment property, we had enough money for the down payment but I had it in a savings account that didn’t have physical branches within 50 miles of where we lived. (I had moved the previous year and just never switched banks.)
So I frantically had to drive an hour and a half north just to go to my bank. But that wasn’t even the biggest problem. I was advised that the quickest way to relocate funds from one bank to another (I opened an account at a new bank near my new home) would be to create a money order and then cash it in the new account. I was told this would take 2-3 business days for it to clear. Perfect.
Fast forward 5 days, and the check still hadn’t cleared and we were scheduled to close that week. Many calls to the corporate office and trips to the local branch and we were able to clear the funds. But that was stressful.
So don’t be like me and make sure you have easy access to your down payment.
It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes. – Warren Buffett
Step 4: Attend a Local Real Estate Investing Group
In a world full of people with phones in their faces, being social face to face is scary. I know. But true relationships and connections are made this way.
As mentioned before, local REI groups are a great place to learn about the industry in addition to reading books.Seeing other people already doing what you want to do will also be super motivating.
You may not see the value now, but one day, you may meet your next partner, your next contractor, or someone who can get you a great deal on kitchen cabinets. But you won’t know unless you go.
Step 5: Commit to a Goal
I’m super goal driven. The only way I can get myself to the gym in the mornings is by having a triathlon on the calendar or a beach trip booked. Having a goal with a deadline helps put fire under your butt and forces you to take actionable steps.
I suggest starting with a long-term goal.
For example, our long-term goal is to acquire 32 rental units by 2034. This makes the actionable steps needed become more clear. Which brings us to the next item.
Step 6: Create a Plan by Working Backwards
This was the most beneficial step for me for overcoming analysis paralysis.
I got stuck in the first two steps. I thought if I could read just one more book, or listen to one more podcast, I’d be better equipped to succeed. And to an extent, this is true. But at some point you just need to jump.
So let’s talk about getting there by working backward and I’ll use our real life long-term goal as an example.
We’re working towards 32 fully paid off units by 2034. So what do we need to do to get there? You can read this post for the detailed math, but after some number crunching, we realized we would have to buy 2 rental units per year to reach our goal. And that math only works if we start now.
The longer we wait, the more aggressive our acquisition pace would have to be. By delaying further, we’re only making it more difficult for ourselves in the future.
So that was our first short-term goal.
- Buy a 2 unit investment property in 2017
Now, what did we need in order to do that? Well, we needed a realtor. That created another short-term goal.
- Call an investor friendly realtor
Perfect, but where do I find him/her. Another short-term goal.
- Research realtors in South Jersey and attend networking events to gain realtor referrals
You see how by working backwards you can turn a large and intimidating goal into a bunch of small attainable ones? Baby steps are okay, as long as you’re taking them.
Real estate is a great way to build long-term wealth. Don’t get caught up in the fear of the unknown. Take small but actionable steps every day towards your goal and one day you’ll look back and be glad that you did.
Never give up on a dream just because of the time it will take to accomplish it. The time will pass anyway. – Earl Nightingale