5 Steps to Take Before Buying Your First Rental Property
Many new passive investors don’t know where to start when they become interested in buying rental properties. They don’t know the steps required to purchase their first one. However, there are five basic steps that must be taken before you purchase your first rental property.
1. Know Your Goals
Step one is write down your goals. You want to know your goals in terms of purchasing these rental properties. Why are you buying these rental properties? What certain number do you want to hit by the end of the year? What cash flow goal number do you want to hit? What are you trying to achieve? What are your reasons, what’s your WHY for doing this?
It’s very important to always be going over your goals and looking at what kind of properties you need to purchase in order to meet your goals. It also will help you figure out how many properties you need, and therefore how much cash you require and how you can come up with that cash.
A good person to talk to about this would be your turnkey provider. You can reach out to us, we can help you create a plan and look at your financials. If you want to hit a certain cash flow number, then we can tell you on average each property we sell cash flows this amount, and therefore you’ll need this amount of money in terms of down payment. So feel free to reach out to us if you need help going over your passive income strategy.
2. Research Different Markets
The next step would be to research the different markets that you may be investing in for rental properties. Do your own due diligence on those markets and figure out which market is best for you.
There are a lot of markets out there which are just cash flow markets, there’s going to be no appreciation, you’re just betting on safe market that are not going to appreciate in value so much, but they have great cash-on-cash returns and great cash flow.
Then there are markets where there are many companies moving in, there’s a lot of job growth, everybody’s focused on growing the city, etc. Typically these cities do not have much cash flow but instead have greater appreciation.
There’s no right answer, it all goes back to your goals and what kind of returns you’re looking for and what kind of deals you’re looking for as well. If you’re just looking strictly for cash flow, then of course you should focus on a city which is all about cash flow and not so much about appreciation.
3. Get Pre-Approved
The next step, once you’ve written down your goals and researched some markets that you may be interested in, is to get pre-approved. We have lenders that we recommend our clients to work with, and we can recommend you to our lenders as well.
Getting pre-approved is a big step because it shows the turnkey provider that you’re ready to make the purchase and you’ve already gone through the steps of getting the financing in place. It shows that you have the ability to purchase a property of that price point.
That’s really beneficial and helps make the process a whole lot smoother when a rental property does come up. These properties do move very quickly, so it helps when a buyer comes with a pre-approval letter already completed.
Pre-approval letters also don’t take very long. Once you’ve given the right documents to the bank they can normally pre-approve you within a couple of days. So it’s not as difficult as you may think, it’s actually fairly simple. As long as you have all the right information to give to the bank, they can get you pre-approved pretty quickly.
Getting pre-approved is also going to let you know what price point you can be in. For example, the bank is going to be able to tell you what loan amounts are going to work for you, how many loans you can have open. You can then take that information and bring it back to your goals and say – “Okay, now that I’ve been pre-approved, does this match up with my goals and do I need to go back and change my goals?”
4. Connect with Turn Key Providers
Next step in this whole process is to talk with turnkey partners, and begin to get on their lists, and show them that you’re ready to purchase, and what you’re looking for. We have properties come up all the time that never hit our website that we sell to our pre-approved buyers. We appreciate it when buyers reach out to us saying that they’re interested in buying properties, they’re already pre-approved, and they’re ready to go.
So get on turnkey providers’ lists, start looking at deals, start analyzing deals, start to do your own due diligence on all these deals. Once you’ve become comfortable analyzing deals yourself with the turnkey providers help, then it’s time for step number five, which is to find the right deal and purchase.
5. Make your first purchase!
All of the hard work came before when you went and researched your markets, you wrote down your goals, you got pre-approved, and then you started talking with turnkey providers. Finding the right deal is now just the easiest part because you’ve done all the hard work before.
Talk to your turnkey provider, tell them you like the deal, show them the pre-approval letter, put the property under contract, and then go and work on getting the property financed and closed.
Normally once you’ve been pre-approved, closing will probably take four to six weeks, so it won’t take that long after that and you’ll be on your road to achieving your goals for cash flow.
Let us know if we can be of any help in this process. We’re here to help you. We can help you with goals. We can refer you to different lenders to use. We can show you past and present deals that we have available, and we could run through the numbers with you as well. If you’re interested in seeing the properties that we currently have available view our current inventory. If you would like to talk to us and ask us more questions, feel free to schedule a call with us.