I always say that real estate investing is the best laboratory for learning business. If you want to learn the ropes and become a successful business person, I highly recommend beginning with real estate. This means owning your own investment property. Many people feel that real estate is overwhelming or difficult. I’m here to tell you that it doesn’t have to be!
Today I want to arm with you the 10 big-picture steps to purchase your very first investment property. Start with property number one, then slowly add to the count as you are able. Before you know it, you’ll be regularly investing in real estate and mastering business like a pro!
Ten Steps to Owning Your Own Investment Property
Step One – Locate the Property
After you find a possible rental property, visit the property in person and estimate any repairs that will be needed. You will also want to verify what similar properties are renting for in the neighborhood. Then, you will determine your offer amount while keeping in mind the possible cash flow.
Remember this KEY tip: Make sure that your positive cash flow is a minimum of $300 per month on a single-family home.
Step Two – Write the Contract
Try your hardest to purchase property at only 80-90% of the real value. Be sure to know your closing costs, origination points, discount points, and understand your refinancing options for taking money out to buy your next property. After the contract is accepted, ensure that all forms are initialed, sealed, and ratified.
Then, advertise for rent immediately.
Step Three – Inspection
Find someone you trust to check the plumbing lines, obtain a termite certification letter, arrange bids for repairs as needed, and don’t forget to review the inspection report closely.
Remember, you can renegotiate the price during the inspection phase. Don’t be afraid to walk away if the seller will not renegotiate based on repairs needed. You don’t want to be stuck with a fixer upper if you weren’t planning on purchasing a fixer upper. What a headache!
Step Four – Funding
During this step of the process, you will fax the contract to your mortgage company, as well as any other supporting documents. Then…
Step Five – Appraisal
Follow up with the mortgage company to make sure the appraisal has been ordered, and follow up with the appraiser to make sure the appraisal has been ordered by one week after the contract is ratified. Call your mortgage company and/or appraiser to get the results.
Next, amend the contract if the appraisal does not come in high enough.
Step Six – Close on Property
Obtain a signed receipt from the closing company of the amount for repair. Also, make sure to review all closing documents extra carefully, including the HUD1, title search, and termite letter, among others. Don’t be afraid to ask questions – you can talk to the previous owners about anything related to the property.
Step Seven – Repair Your Property
Hire an experienced repair team and provide appliances if needed. It would be a good idea to create a team of people – an electrician, plumber, painter, general maintenance man, and landscaper – to work with as you grow your investment property number!
Remember this tip: Do not make the final payment on repairs cost until all inspections have been passed.
Step Eight – City inspection
Ensure that the property meets all safety requirements, and that the smoke detectors are installed and working. This is a quick step but an important one.
Step Nine – Rent Property
Show the property to your prospective tenants. If they like the property, run a credit report and make sure that the rental agreement is filled out completely and accurately. Choose your tenants carefully and ask questions to know about their rental history, habits, and more.
Keep record of the contact information for each tenant – even if it is a married couple.
Grab a FREE copy of my rental agreement at the end of this post!
Step Ten – Manage Property
As property manager, inspect the property on the first Tuesday of every month. Tell the tenant that you or your management company will be coming in monthly to check HVAC filters and smoke detector batteries (while you’re inside, you can easily see how properties are being taken care of). This is the key to maintaining great rental properties and keeping a positive relationship with your tenants!
Make necessary repairs as they come about and collect rent each month.
Ten steps may seem like a lot of steps! But I promise that if you walk through them slowly, carefully, and with guidance, you will become a real estate investor faster than you could imagine.
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