I’m going to show you how to buy your first investment property step by step. I’ll go over everything you need to know and do to make your first property acquisition, a success from how to find a profitable area to invest in to properly running the numbers to working with the right people and more. This all comes from my experience as a real estate broker and investor myself.
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Let’s get started. So, before you buy an investment property, there are some things you should know. Real estate prices are rising as the national median listing price for active listings in March of 2022 was up 13.5 percent compared to last year and up 26.5 compared to March 2020. Although, we can’t predict the housing market properties and rent are projected to continue rising due to increased inflation and interest rates which historically have caused home prices to go up Andrew Carnegie famously said that 90 of millionaires got their wealth by investing in real estate which still proves to be true today with the international center for trade and sustainable development saying. 9 out of 10 millionaires in the world became millionaires through real estate investments. You can see why real estate is such a popular and lucrative investment vehicle one that almost all millionaires rely on to build their wealth. You’ve probably already made up your mind on buying an investment property.
We’ll now dive into each individual step you should take. If you want to secure your first successful property step number one is to save up for the down payment now compared to traditional residential properties that you are living in yourself investment properties need a larger down payment. It’s very typical to require between 20 to 30 percent down payment with 25 beings. I’d say the average and it all depends on your lender now there are some ways to get around this. For example, getting a personal loan for the down payment but I actually don’t recommend that because there are lots of unforeseen expenses. If you’re cutting it really close then if something unexpected happens, well, then that’s going to be a big headache. Including this step is actually making sure that your credit is good right because having a good credit score is going to have a huge impact on the interest rate that you’re getting and that has a big impact on your payments.
Start saving up right now get comfortable being frugal don’t buy things that you don’t need because if you want to buy your first investment property. Then, obviously, you’re going to need a good amount of money and the earlier you start investing the better of a position you’re going to be in the second step is to pick an area that you want to buy a property in. What I recommend doing is going to city data.com and looking at a few things, for example, historical price trends population trends income growth as well as crime data. I view this step as extremely important because the location, you’re investing in, is basically the foundation of your real estate investing journey. So, hence, don’t skip out on the step, take a long time to figure out where you want to invest when it comes to different places to invest in. You’ll likely choose between appreciation versus cash flow appreciation being in some areas the price of homes tends to go up a lot. But the drawback is that the rental rates compared to the prices of homes there are not very good on the other hand you have cash flow areas and these are places where the value of homes doesn’t increase as much.
But the amount of rental income, you’re able to get tends to be quite high compared to the purchase price of the property. So, usually, it’s one or the other but some places might offer a rare combination of both. You might also want to consider investing in a landlord-friendly state, for example, Texas, Arizona or Florida. If there are issues with your tenants then having your property in one of these states is going to be a huge win for you another thing to consider is that it’s really great to invest. If you are close by this is a huge advantage that not a lot of people talk about. But the truth is that if you’re out of state, it’s going to be pretty hard for you to go there. Look at the homes handle things. If needed and all that stuff, however, I know that some of you are probably living in some very high-cost of living areas where it might not be possible for you to buy a home there. That’s completely okay you. If you do want to invest out of state. I’d say make it one non-stop flight away. If you need to transfer flights, then it’s probably too far or it’s just gonna be too big of a hassle for you to get there. If needed and then now a question. I get a lot is what are some of the popular cities to invest in I prepared a list for you. Hopefully, it’s going to kickstart your own research.
You have Cleveland, Ohio, Phoenix, Arizona, Independence, Missouri, Memphis, Tennessee, and Jacksonville, Florida among many others. There’s no city that’s perfect for everyone because there are so many factors as we talked about. This is definitely going to be an important step, so don’t skimp on your research. Buying an investment property is complex, but rewarding. But meanwhile did that there are much faster ways to invest in real estate.
Step number three is to find a realtor and lender the team that you work with is extremely important. I used to want to do it all myself but then I realized that was not the smart move essentially. A realtor is going to help you comb the MLS and off-market listings that could fit your criteria. They’re going to be an extremely important person on your team, especially, if you want to find good properties to invest in plus as a buyer. Their fee is built into the price of the home, so you’re not technically paying them rather the seller is paying for your own buyer’s agent now. Your lender is going to help you secure financing and get your loan app approved. It’s really important to find a lender that can actually get your loan through. So, I wouldn’t just look at how low their rates are, of course, that is important. But sometimes I’ve actually gone with a lender that had a slightly higher rate just because the reviews were so much better. Because, of course, if you can’t get your loan through then you can’t buy your house now.
What’s the best way to actually find these team members right for me reviews and word of mouth are the best ways to find these people for reviews. I like to look at yelp and bigger pockets and then for word of mouth that’s self-explanatory ask people that have done deals in that area and see who they actually recommend. There are also platforms like home dime that connect you with top agents and lenders in your area. So, that can also be a really great resource for you, the really important thing is that it really helps. If they have investing experience or work with other investors. They’ll know the things to look for they’ll help you run the numbers. The way I think of it – there are so many agents out there. Why not choose the best to actually have experience with what you’re trying to do. So, remember, it’s a collaborative effort and don’t try going at all the stuff yourself step number four is to actually find your home and get your mortgage done so with regards to your agent. You’re gonna want to communicate your criteria your numbers and anything else that you think is important for them to know with that information. They’re gonna begin to look for properties that actually match what you want.
If they’re well connected they can actually also find off-market properties that are not on the MLS and sometimes those are going to be a much better deal. It’s important that you put into motion this search phase because it can take a long time in some cases it might even take months or a year plus to find a property that matches what you want now. When it comes to your mortgage application with your lender, you’re going to want to be really on top of things right. They’re going to have a lot of loan documents that will need to be signed. You’ll want to do those as soon as you get them because that’s going to make everyone’s life a lot easier. You’ll want to have them submit your documents to the underwriter to get that pre-approval and whoever you’re using as your lender is going to help with this. But I’d say that for you just be on top of things send them documents when they need it and your loan will get pre-approved much faster and the whole loan process will be a lot easier number five is to actually run the numbers.
Once you find something that looks intriguing, so for this step your real estate agent can actually help. But I’d say that you should also understand yourself. So, that you can be a savvy investor this basically allows you to do your own due diligence and not just rely on your real estate agent because, of course, they can make mistakes there’s lots of information. You can learn and you can get all this info from books on Youtube from forums like bigger pockets understand the key terms like cap rates cash on cash return the one percent rule and when all these things. You are a better smarter investor and I just highly recommend you take some time out of your day start learning these real estate terms.
This article is a transcription of a video made by Сharlie Chang
Original video: https://youtu.be/NTOaaflv2ZA
