When I got into investing there was a lot that I didn’t know or understand. I have tried to put together 6 steps/tips to help a new investor get started. I hope these help and good luck with your investing adventures.
SET UP YOUR BUDGET & SECURE FINANCING :
One of the most important parts/if not the most important part of buy a rental property is your financing . This is the first thing you need to address. You need to do the math and look at what kind of cash you have on hand. How much can you save and invest? Then you need to research what route you want to take in terms of financing (conventional, private money, all cash, etc.). Typically you will need at least 20% down payment of the purchase price.
Next you need to secure financing. It is important to shop around. Once you have decided on a lender get pre-qualified. Having a pre-qualification letter can really help you get a property over someone else who doesn’t.
DECIDE ON A STRATEGY:
I heard somewhere try to be great at one thing rather then average at a lot of things. I have had to learn this the hard way, I sometimes get the shinny object syndrome. This has probably set me back in my financial freedom journey, but I have learned some good lesson’s because of it.
In short figure out what your goal is and pick an investment strategy that will help you achieve that goal.
Some examples of different strategies:
- Buy and Hold
- Fix and Flip
- Whole selling
- BRRR (buy-rehab-rent-refinance)
- Vacation Rentals
- Commercial Buildings
- Residential Properties
LEARN THE LINGO AND UNDERSTAND THE BASICS:
There is a lot of lingo that gets thrown around and since you are going to be working with agents, lenders, other investors, etc. It is important to understand and know how to communicate with them. For starters you should understand what capitalization rate (Cap Rate), cash on cash return (COC return), internal rate of return, net income, etc.
DECIDE ON YOUR MARKET/ DO YOUR RESEARCH:
It is important to know where it is you want to invest. Even if you live in the area or if it is out of state do all you can to learn and understand the market, city , etc. Make sure you can afford a property in the area and that the numbers work. It is important the you are making money on the investment.
FIND YOUR INVESTMENT AND BUILD YOUR TEAM:
Once you have found your lender, gotten pre-qualified, decided on where it you want to invest, it now time to find that investment. You can either do this on your own, but I recommend hiring an agent. They may have more experience knowing what is available, access to listing you may not have, they can help negotiate a better deal, etc.
RUN YOUR NUMBERS ON THE INVESTMENT PROPERTY:
Once you found a your investment or a few investments either on your own or with an agent crunch the numbers. Make sure the numbers meet your goals whether it is a buy and hold, a fix and flip, etc. It is important that it is a good investment for you.
Check out my post on how to analyze a rental property on a napkin
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