How To Buy Your First Rental (8 Beginner Steps)May 31, 2021
Imagine a world where you didn't have to get up early every day or drive to work or make another company super rich and then before some were dependent on government social security and maybe 50 years of retirement savings alone to survive. the last years of
yourlife, what if you could have the opposite? What if you could have time freedom like now or financial freedom soon? More time to do the things you want to do with the people you love doing them with now. That may sound incredible, right, but it's not always that easy. My name is Brandon Turner, host of the Bigpockets podcast, and the truth is that life in freedom is possible, it's completely possible, but it won't happen on its own. to make some radical changes in
yourlife and I believe that one of the best ways, if not the best, that you can make that change happen to make that life happen is through the power of investing in
rentalproperties or purchasing of
rentalproperties now in this video, I'm going to share with you the step-by-step process of purchasing your
firstrental property, but
firstlet me share four very quick reasons why rental properties are so amazing right now, maybe You don't need to sell them, but listen to this.
It's great, first of all, when you buy the right property, you make profits every month, what we'll call cash flow, so each property is like this little oil well, like they're pumping money out of the ground 24 hours a day, the 7 days a week. get enough units there, you will know 2 3 5 10 20, whatever you get, you will get the freedom you want. Secondly, when you buy real estate, you can use a loan, which means you don't need to have all the money up front to buy it, you can even do it for as little as zero dollars down, more on that maybe in a second, but the good thing is that over time your tenants pay off the loan, so you may start out owing like 200,000. but in 15, 20 or 30 years that won't pay off, but your property is worth a ton, right, it's still worth a lot, but he no longer owes anything for her.
Third, over time, rental properties tend to appreciate in value, meaning that as the property goes, you're paying the mortgage, it's actually increasing in value now yes, there are occasional ups and downs and dips in the cycle, but in the long term it has always been an upward trajectory. Now, fourthly, there are a lot of surprising taxes. Benefits of Owning Rentals and I don't want to bore you with all the details right now, but believe me, it's really amazing, you can hardly pay taxes, sometimes there are no taxes on the money you make from rentals, if you're smart, like that Making a hundred thousand dollars from investing in rental properties is very different from making a hundred thousand dollars from a job that you keep a lot longer so how do you buy the rental property and then how do you get started?
How do you buy the first one? Okay, let's go through the
stepsright now and hey, as I go through these
steps, do me a favor if you think this video is helpful, you like what you're seeing, click that little thumbs up button below the video, it just helps us. to reach more people with this change of life. message, okay step number one, determine your market, so the first step is to figure out where you are going to invest, like there are a million places to invest in real estate all over the world, but you have to choose a place, it's good to find first. negotiate locally or at least within an hour or two, so explore websites like realtor.com or zillow.com and start looking at different properties in your area to see what the prices look like, to get an idea of where the prices are. prices. are highest and where they are lowest now, if possible, connect with other rental property owners in your area so you can see where they are buying.
I mean, honestly, you don't need to reinvent the wheel every time and try to find some new and mysterious place. just figure out what works and where it's working and do it there now, where do you find those people? How about bigpockets.com, the largest real estate investing community in the world with around 2 million members, by the way, it's almost crazy if you find that the prices are too expensive in your market, you can always invest long distance for example i live here in maui hawaii but i invest in florida ohio minnesota wisconsin and maine you know it's doable but it requires some we'll call it special handling so don't miss out. my friend david green his book called long distance real estate investing is fantastic now, once you have defined your location, you know where you are going to invest, it's time to take step number two, which is to get pre-approved to determine your financing now for your first deal, a bank or local lender will be a great way to start financing your real estate deal.
They usually require a down payment of 20 and sometimes a little more or less for a rental property. But, if you are willing to live in the property for a year first, such as if you bought a four-plex triplex duplex, regardless of whether you live in one of the units, you can get a discount as low as three percent, even from zero percent if it's a VA Loan or USDA loan, so talk to some local lenders to see what you may qualify for and what programs they have now. If you don't have that much money or if your apartment is completely broke, you may need to spend time networking with other real estate investors. in your area and other just professionals so you can potentially partner with them on your first deal, so you close the deal and they pay the down payment.
Now it's a little more complicated than what we just talked about of just putting up your own money, but in the words of Jim Rohn if you really want something you'll find a way, if not you'll find an excuse so now you've gotten pre-approved , I hope, from a lender and you know where you are going to buy, so that's it. To buy, don't stop your horses, John Wayne, before you start buying property, you need to develop one more skill, which brings us to tip number three, learn to analyze properties. Look, knowing how to analyze a rental property is, I believe, an investor's greatest skill.
Fortunately, it's not that difficult, you definitely can do it and Bigpockets even has calculators on our website that allow you to crunch the numbers for a rental property in less than five minutes, but the key to this is understanding the actual income a rental property could make. property. products that, as a local property manager, they could tell you in a two-minute conversation, so find a local property management company and ask them, what is the purpose of renting this property? You will figure it out and then you will get a very clear picture of the expenses you will have each month now can be a little complicated, I fully admit that, but ask the right questions of the owner or real estate agent once you start looking for offers and once that those offers are on your desk that you're going to get the answers you need, you say, well, what's the cost of the insurance?
Call the insurance company. I wonder how much the water bills are. Call the water department. Look when I analyze offers. I really look closely at two. What I want to see is the monthly cash flow, like the dollars that I end up making a profit on each month, and I want it to be a few hundred dollars at a minimum, like on a single-family home, and then just as important or maybe even as important. The most important thing is to know what is called cash-on-cash return. This sounds a little intimidating, but I'm going to make it very simple: it's just the return you made on your money in one year compared to how much you invested if you put ten dollars into an investment and made a dollar of profit that first year, that's a ten percent good work now, if you invested twenty thousand dollars in a real estate deal and you got two thousand dollars in profit cash flow in the first year, that's a ten percent return in the first year. ten percent cash in cash back now, not a bad number to shoot for at ten percent, maybe you're a little more or less, but that's usually in that ballpark, so now you're a rock star in rentals of analyzers, you've done a lot Okay, so what's the next step, four, buying properties?
So at this point you should start looking at properties and try to determine, based on the numbers, what might work now for most people, especially when you're just starting out. I recommend. Starting with a real estate agent, find an agent, preferably one who understands the investment side of real estate, and then have that agent send you automated emails for whatever type of property you are looking for in the area where you are located . looking, it's really that simple, talk to an agent and say, "Hey, I'm looking for duplexes in this city." Okay, here are all the duplexes, like you can also spend a lot of time on similar sites like realtor.com or zillow.com and you can currently see what's for sale on those websites.
Now there are also other off-market ways to find deals, but I don't want to spend a lot of time talking about that in this video because honestly, 99 of you can find your first one. Deal with the help of a real estate agent so you don't have to worry about the grand slam deals you can get off market, just get something right now with an agent if you want to know more about off market deals, although visit Bigpockets. .com off the market, okay, so step number five starts looking at a lot of offers. Now I know that step three was the offer analysis.
Why are we talking about it again? Well, now let's use the knowledge. Actually, you're going to start analyzing. potential properties, a lot of them you'll feel very good and comfortable with analyzing deals, you know, it's like when I started doing Brazilian jiu jitsu like I didn't know anything, I went in there and I didn't know that nobody knew I don't know anything, I struggled, I They pinned me down or choked me all the time or locked my arm, whatever, but now that I've been doing it for almost a year, I still suck and I get hit constantly all the time, but I'm understanding a lot more like the other day, on I actually did like a 65 year old woman who weighed like 90 pounds, you know, I strangled her, it was cool, not literally I strangled her, but you know, I tapped her, it was cool.
Right now you know the point is you're not going to be amazing, you're not always going to be amazing at first, look at a few offers every day until you get something that you think you could make work and then step six, get your offer seen. Your real estate agent will help you with this. It's not that complicated, but you know that in a competitive market you have to be quick and smart. They will also reject you all the time. Okay, real estate is a numbers game. Honestly, I probably get one in every 10 or one in every 20 offers we make accepted, but that's okay because I just make sure I always offer enough properties.
I'm analyzing enough. I offer enough. Right now I get offers and I'm always trying to find ways to improve my offers and what works best. Know? Can I include a letter? Can I be faster? Now I eventually enter into negotiations with a seller and then from Hopefully they get the property under contract now, when they get their property under contract, they will have to pay what is called earnest money. Now the guarantee is usually about one percent of the purchase price, so a hundred thousand dollar property could cost a thousand. dollars and it's basically your promise what you're saying here, this thousand dollars promise that I'm not going to just walk away from this deal and ruin you all the weeks of hassle and time now that the money is normally refundable to you as long as you purchase the property or you remove for a legitimate reason, like you did an inspection and it was like you know you found out there's, I don't know, a meth lab in the basement.
Now we enter step number seven. due diligence so due diligence is everything you do between signing the contract so now you're under contract and then closing the deal so the first step is to schedule a property inspection and then with an inspector local property agent your agent will have a good recommendation that they can help you choose the agent can also help you choose a title company that will help you do the closing or an attorney and they can do all the paperwork there so the agent will help you with that and if you are purchasing a tenant who Sorry if you are purchasing a property that already has tenants.
I want you to make sure you verify that the rent amounts they said they were getting are actually what they got. Check all income and check expenses as well. ask for a property manager during this time of due diligence, if you don't want to manage it yourself get insurance for the property and finally at the end of it all you will sign the documents and transfer your down payment, the bankwill transfer your deposit money and close on the property, which is pretty exciting, but we're not done yet. There is one last step: you must manage the property.
Step Eight: Manage efficiently, effectively and profitably. Your journey is not over. The best offer in the world. It can still be destroyed and ruin you if you don't manage the property properly now, maybe you are planning to use a professional property manager and they usually charge around 10 of the monthly rent for their ongoing fee. Now a property manager can be wonderful and I use them on several of my properties, but keep in mind that they don't completely set you free, you still have to find and vet a great manager, which can be difficult, there are a lot of bad ones out there. and you must keep them.
Keep an eye on them because look, the truth is that no one will care about your property on the same level as you do. I don't care what you pay them as they won't care like you care now. On the other hand, you can self-manage, you can take care of the tenants yourself, which can be rewarded in your own way and we did that for years, and you will also save a lot of money doing it, but managing tenants requires a bit of knowledge, systems and processes and knowing what you are doing now, if you want to learn exactly how I manage my rentals, my wife and I wrote a book on the subject called a rental property management book, you can get it at a library.
If you don't want to buy it or you buy it on Amazon, they're out of it, I think they're out of it or about 500 five star reviews, people really seem to really like that book or you get a bigger store on Pockets.com. and get a ton of bonuses with it, but either way learn how to do it if you're going to do it now if you like this video don't forget to click that little thumbs up button click on the clip. I think I have the clip. Click on that. little thumbs up button below the video follow us here on bigger pockets for more real estate investing content and follow me wherever you know I am on Instagram I'm like a 13 year old girl so you can find me there on Beardy. brandon for bigpockets.com my name is brandon turner saying goodbye
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