Thinking about getting into the investment game? Not sure where to start or how much you need to buy your first deal? Never fear, 3.5% is here! Follow these five easy steps to buy your first investment property.
“Buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy.”
marshall field, entrepreneur
- Determine Your Investment Goals
- The single most important goal in investing is to determine your end goal. If you are investing for additional income, retirement, building wealth, legacy, or tax planning there are many different ways to investment in and reasons why you do can change based on what property or project you purchase. Often, if one is looking for additional or residual income, rental income is the way to go. For more immediate returns, flipping or wholesaling a property is the usual route. Once you are clear about what your end goal is, you can move on to the next step.
- Build Your Team
- Once you have determined what your end goal is, the next step is to build your team. Most beginners will need assistance with an agent to identify properties or projects that fit your criteria. They can typically provide analysis of said projects and connect you with other needed professionals that you will need to acheive your investment goals. Some of the additional vendors can include tax planners, GCs, architects, attorneys, and lenders. This leads us right into the next step, getting preapproved for your purchase.
- Preapproval
- The first step is to get preapproved for an FHA construction loan is to speak to a lender or broker. These loans have different requirements than a standard 30 year residential loan so it is important to have a trusted advisor that understands this process. This loan can be used to buy a single family to a four family home that needs significant work. The benefit of this loan is that the construction costs are included in the total loan, so you only need to qualify once, close on the property, and complete the construction, before renting out or selling the project. The total amount borrowed is equal to the value of the home after the work is finished.
- Indentify and Purchase Property
- It can take time to identify and vet the correct project, however, if this step is skipped, the risk of failure or foreclosure is high. It is extremely important to check and double check, analyze and do all the due diligence possible before closing on the property. Title searches, inspections, and analysis with attorney’s and your team are just some of the task that can and should be done before closing.
- Rent or Sell and Reinvest!
- When you are finished with your purchase and any necessary work, proceed with the sale or installation of tenants. Usually, the agent that assists with the purchase is helping with the rental or sale of the finished product. In this way, an owner can save in commissions, as they have more leverage to negotiate lower payouts. Once the lease or sale of the property is complete, be sure to reinvest the proceeds for tax purposes, with a 1031 or an annuity, or put into the next project. With rental investments, a good property manager is worth its weight in gold. It will save you in headaches, time, and ensure you do not have vacancies and assist with turnover.
