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.
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 essential steps to purchasing 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!
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
Scope 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.
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.
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
- Hud 1: Carefully review HUD1 before closing and make sure any rents/deposits are on HUD1 if the property is currently rented.
- Repair Escrow: This is to be communicated in writing to the closing company (title company). Obtain a signed receipt from the closing company of the amount for repair.
- Closing: Review all closing documents extra carefully, including the HUD1, title search, and termite letter, among others.
Step Seven: Repair Your Property
Hire an experienced repair team and provide appliances if needed. (If appliances are provided, rent can be increased.)
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.
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.
Record 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).
Make necessary repairs as they come about.
Collect rents 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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