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Preparation List for New Real Estate Investors
1. Take Inventory of Your Debt
Real estate investing is a great way to grow your net worth and add positive monthly cash flow.
However, you want to be aware of any high interest debt you currently owe. It may make sense to wait until that is paid off to buy an investment property.
You can check with a loan officer or financial advisor for advice on which debt is to pay off.
On top of that, it is a good idea to have a written budget with monthly expenses, to see how your new real estate endeavors will interact with your current financial temperature.
2. Read Some Books
Read, read & read more. Actually, I listen to books more than I physically read, but the result is the same.
For investing I focus on 3 types of books: technical (actual real estate investing books), financial (general financial and investing advice) and personal growth (mindset, goals and overall well being).
This is a good balance and has helped me grow as an investor and a person.
I have compiled a list of books for real estate investors here. It has a little of everything, technical, financial and personal growth.
3. Save For a Down Payment
Investment properties have, on average, higher down payments than buying a home to live in as a primary residence. It is typical for down payments for investment properties to be 20-25%, depending on the loan type.
You may be able to find some lower down payments packages, but keep in mind it could affect your interest rate.
4. Keep an Emergency Fund
Financial books give different perspectives on investing, and their methods and advice vary.
But there is 1 thing that they typically always agree on: you should have an “emergency fund”. In other words, enough cash in the bank to live on for usually between 3-6 months.
Real estate is a great investment, but you have to sell, refinance or get another loan in order to access the equity you have built.
So having cash set aside can save you from getting into a stressful financial situation.
5. Make a Plan For Financing
Most investors use a loan to acquire investments properties, especially when you are just starting out. The ability to use leverage is one of the benefits of real estate.
It is good to talk to some loan officers, lenders and also smaller banks and hard money lenders.
As you go about your investing career, you will see that there is usually not one institution that will help you for all loan types at all times.
Each deal is different, so having a few different options is a good idea. However, loyalty goes a long way in the business. I have lenders who I go to first, and then if they are unable to help I go to the next option.
It is also not a bad idea to learn about seller financing.
6. Find a Real Estate Agent
If you buy your properties off market, you will still want to have a good real estate agent to sell them when it is time.
Establishing a relationship with an agent who has expertise with investment properties can also mean they will bring you opportunities that they find first.
Again, loyalty goes a long way here as well. If you are providing an agent with listings on flips or have them represent you with on market deals, they can help you find more properties on keep you on the top of their list.
7. Consider Buying a Primary Home
I know, you want to invest in real estate. But if you already own a home, that could be your income property right there. Buying another property to live in and then renting out your current one is a great shortcut to being an investor.
Of course, you will want to make sure that your current home you will turn into an investment is a good rental property. Run the numbers and make sure it fits your criteria.
If you do not yet own a home and want to invest, it can be a good idea to instead buy a primary home and just rent out rooms. Or make a basement apartment, which is becoming increasingly more popular in the US. I bought an investment property while I was still renting, and wished I had done it this way.
8. Decide Where to Look For Properties
There are a large number of ways to find investment properties. You can market to absentee owners, look for distressed properties, drive around and knock on doors, buy from a wholesaler, find undervalued properties on the market and more.
Decide where you are going to focus your efforts to find the right property.
You also want to decide what areas you will look. Remember to consider how close to home you will be, especially if you are going to be managing the property.
9. Learn The Market
You want to start to really get to know your target market. What homes are listed for, what they sell for, how long they stay on the market, etc.
The better you know the market, the easier it is to find the right property.
10. Write Out Your Ideal Property
Write out what your ideal property would be. Keep it within reason, the “perfect” deal does not exist.
But you want to know if you are buying rental property or a “fix and flip” property, how much cash flow monthly you want or profit from the sale, etc.
11. Practice Analyzing Properties
As you find properties that look interesting, practice analyzing them. This means estimating rehab costs, monthly rent, all expenses, vacancy and more.
It might be overwhelming at first, but it will become easier and more accurate with practice. Here is an article with some examples of the numbers I use for rental properties.
12. Start Building a Contractor List
Whether you are fixing and flipping or renting out a property, you want a wide range of contractor relationships.
You can make a spreadsheet of all the contractors you might need in the future and then start to fill them in as you meet people. You will want both general contractors, handymen and specific trades.
This is your team for both remodeling and maintenance, and you want them to be ready when something is needed at a property.
13. Be Ready To Write Multiple Offers
For every rental property I purchased, I have written 5-6 offers on other properties. Sometimes you get beat out by other investors or builders, sometimes you just cannot come to an agreement with the seller.
This is a part of the process, so do not get discouraged if your offers are not getting accepted at first.
14. Find a Mentor..Or Partner
It is good to have an experienced investor on your side. It will minimize mistakes, help with analyzing properties and can make the process less stressful.
Many times, if you find a good deal a trusted, experienced investor will partner up with you to purchase it.
15. Get Ready to Move Fast On The Right Property
Getting a contract on a property once you know it will work for you must be done quickly. Never assume you are the only one interested in a house.
Some sellers also will require a quick closing, so be ready to have a financing option for that.
Conclusion
Buying your first investment property is exciting, often has obstacles to overcome and can set you off on a lifetime journey as a real estate investor.
This list is a helpful tool to get you thinking about some steps to make sure you are ready for the first property.
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