Basic Steps to Buying Multifamily Properties for First-Time Real Estate Investors

so you're thinking about buying your first investment property your first multi-family building and so we've created this really neat seven-step process on getting started to walk you through and kind of take those initial first steps to make sure that you have all the right information to make the right decision so let's kick it off caleb so let's let's talk about the benefits i mean we work with a lot of clients we've helped so many clients get started some people are just getting started others are buying their third their 10th property what are some of the benefits that you hear from them when they invest in real estate yeah so that's obviously the first question that we get and there's two quick answers that jump to the front of line appreciation or cash flow you can't have both so it's important to choose one up front obviously leverage is real important it's it's one of the most leverageable assets that's out there unlike stocks if you want to buy 500 000 worth of stocks you need 500 000 so let's talk about leverage really quick so when when caleb says leverage he's talking about getting a loan from the bank and so the best way to kind of explain this is it's possible that the majority of the purchase financing comes from the bank so you as the bar are gonna put very little down in some cases as low as three and a half percent five percent maybe 20 percent and the bank is really taking all the risk they're the ones putting up the money and so what we say when we talk about leverage or positive leverage is making money on the bank's money let's just assume that you're borrowing at three percent interest rate but we know for a fact looking back at historical trends that the appreciation of real estate is uh 6.3 so you're making over three percent on the bank's money they're putting up all the risk and that's what we're talking about leverage let's so let's continue with some of the other benefits that we that we hear so another main benefit is it's a tangible asset you can go visit the property you can go touch it you can feel it you can make sure it's still standing and operating properly which is unlike a lot of other alternative investments there's a lot of tax benefits to it and now while this video is going to be more of an overview we'll have other videos where we really dig into like what exactly is a tax benefit but this at the end of the day will save you money on taxes because you own this investment the government is rewarding you for buying property there's a positive economic attribute that happens when an individual buys a property so let's talk about partnership so that's another good good thing about buying apartment buildings is that you could partner up caleb and i have partnered up together sometimes we'll bring someone else in and we're able to bring our proceeds together go get a loan and go buy a property so this is something that you don't have to do it alone you can but you have the option to partner up so those are some of the benefits let's talk about step two what's the main motivation what's the plan what's the goal let's let's talk about that yeah so there's a a lot of different driving factors for someone to want to get started in real estate investing understanding that is key up front so some of the main motivations that we hear from investors that we work with is creating generational wealth something that they can create watch grow and then pass on to future generations that's one of the ones that stands out another motivation is cash flow if you have an asset that's going to give you an extra income at the end of every month at the end of every year then why wouldn't you make that jump you know and here's an interesting thing when we talk about appreciation we know from historical trends and we have financial models to prove this that properties in southern california they're going to double every 10 to 12 years and so here's something that we've kind of come up with if you want to be a millionaire buy a four plex for a million dollars and within 10 to 12 years it's going to double it's going to be worth 2 million as shocking as that is that has been proven time and time again every 10 to 12 years you're going to double so if you buy something for 2 million it's going to be 4 million so if you want to be a millionaire i tell people buy your first fourplex that's a great way to get started again we have cash flow and sometimes i tell people we're not going to have cash flow in the beginning years sometimes we're borrowing so much money from the bank that the rents that come in are going to offset the mortgage so long as we're at a break even but the property's appreciating we're going to be in a very very good position some of the other benefits that some of our clients have mentioned is it's given them freedom some folks have been able to retire and all they do is manage their their real estate they love to go water the the lawn check in with the tenants and it's given them freedom and it's allowed them to retire and that's just a really big plus and so when we're talking about the benefits we want you to know what is it that motivates you why are you wanting to do this and knowing that will help us better guide you so step number three is getting pre-approved can you walk us through the process and does this cost us anything it's totally free the only thing that it's going to require from you is maybe a little bit of time and energy and some homework now the homework's not daunting don't worry all the lenders really going to want to see is tax returns proof of income in the form of pay stubs and obviously they'll run your fico and with those three components they're able to give you a dollar amount that you can purchase and with that we're gonna game plan make up a strategy that makes perfect sense based on the motivation that we've already discussed and we'll get the ball rolling set you up on a search now a lot of people say caleb how long does this take again it costs nothing in most cases if you have all the documents already in place it'll take about three days for them to get you your pre-approval letter just to reiterate it's free it takes three days to get pre-approved so long as you have your documents in order and some of this stuff is just your tax returns paycheck stubs when caleb talks about fico we're talking about your credit score all that's done by them you don't put up any of your money and it doesn't really hurt you in any way oftentimes we get people that contact us they're interested in buying and there's something holding them back and they just wonder and they wonder whether they are going to be approved for it for a building and i say let's stop wondering let's just know for a fact either you qualify or you don't but that's going to give you a really good positive feeling knowing that hey i do qualify and i qualify for this amount yes i can pull it off or i don't and if and if we can't then we'll assist you in either improving that credit or maybe saving up a little more money having a game plan to have enough reserves to be able to buy a building so so that's step three let's move on to step four and that's choosing the right agent not all agents are are made equal there's a lot of agents caleb that focus in strictly on multi-family right absolutely absolutely and probably the most common mistake that i see investors that we work with make is wanting to work with maybe a friend or a relative because at the end of the day it's not that difficult to get a real estate license now it is difficult to do really well and provide the results and give the level of service that the client deserves but ultimately working with a friend or a relative that's not full-time that doesn't do this 40 50 60 hours a week it's going to be really really hard in a competitive market to ultimately purchase the investment that you see is you know the best fit for you and so just to touch on that some people treat real estate the profession as a hobby they they do it part time here there when someone reaches out to them for us it's our profession we take it seriously we we invest a lot in our education and getting better so we can provide you the service and so for us when it comes to wanting to buy your first investment property we suggest that you go with a broker that strictly does multi-family someone who not only owns this type of property but someone who specializes in knows all the unique facets and buying an investment property you will find a lot of residential agents who do a spectacular job at selling houses but they don't have a lot of history in selling multi-family so if you're in this area we certainly recommend that you reach out to us if you're out of the area reach out to us because we know other folks in the san diego area or all over the nation there are affiliates of ours who we know specialize in will be a good source when buying your first investment property and juan brings up a good point you know there's there's tons of stellar residential agents out there that that are really good at selling homes now the reason why he brings up maybe some of the extra challenges when it comes to buying units is there's a whole other set of criteria a whole nother set of obstacles that need to be overcome so working with someone that does this day in and day out is essential because dealing with tenants can be a headache making sure that you're given the proper notices and managing the building in the proper manner is is huge right and so working with someone that's not quite familiar with that you'll find that a lot of those headaches get passed on directly to you and everyone's sitting there scratching their head trying to figure out what to do so there you have it that's step four and that's choosing the right agent to represent you on your behalf let's talk about step five which is writing offers so now we're pre-approved you've chosen the real estate broker that's going to represent you so now you're submitting offers what's what's that mean caleb when we're submitting offers so we write offers day in and day out for clients at all different price points all different unit counts and so in a nutshell there's a few components that are are really the main terms of the offer so obviously one is the price the second is going to be the escrow period and the down payment and obviously there's three contingencies which are going to be the physical contingency the appraisal contingency and the loan contingency a lot of agents think that price is really the only way to stand out now when you're working with professionals that again do this every day you'll find that there's ways to kind of chop down some of those contingency periods you know outside of price that will make that offer stand out amongst a pool of competitors because let's face it it's a hot market it's hard to secure investment and so working with someone that knows what they're doing and the different ways to structure an offer is is really important one of the questions that we get is how do i know if it's a good deal if you're working with the right agent then hopefully that agent is is able to show you that that you're you're making a wise decision on this investment right we want to make sure that that it's going to make you money that you're not overpaying for the property and that it's a property that we could make some renovations to it maybe we could add some value to it to raise the rents and so when it comes to choosing the right property we look at everything that's on the market we compare across each other with with a program that we have we call it the investigator and so we look at every property out there we let you know if cash flow is important you buy this if location is important then we're going to show show you some properties in that area and so when writing the offers we play a very active role in making sure that we advise you and after the first couple offers it gets easy we always tell people don't fall in love with the first property you see because the market's so hard right now that we're you know sometimes writing five to eight offers per client to get them that right property because some things will get outbid and we won't be in a position to win that property so so that's step five writing the offers step six which is the escrow period which happens after they accept our offer so once we have the winning offer we go into step six which is escrow uh let's talk about that process like what goes on while we're in escrow escrow seems to be a kind of a tricky subject for a lot of people that are new to this so in a nutshell like one said once we have the offer accepted we can officially open escrow we'll send them the purchase agreement at that point they're going to reach out with some specific instructions to get in that initial deposit now that initial deposit shows the seller that you're serious about proceeding they now have a little trunk in hand so they can sleep well at night knowing that you're not going to get cold feet and back out now once that escrow has opened that's when those contingencies that i mentioned before start to begin if you have a let's say a 10-day physical investigation the clock starts ticking once we've opened escrow now as your representatives we're going to make sure that we're in a position to succeed we're going to make sure that we have all our ducks in a row so it's as smooth and stress-free as possible because like we mentioned this is your first time we want to make sure that we're guiding you appropriately and making it again as stress-free and as smooth as possible a question that we commonly get is if my offer is accepted and if i don't buy it do i lose my deposit yeah that's a number one question obviously when you're putting in three percent of the purchase price or two percent of the purchase price that's a significant chunk so when you have the three contingencies in place what those serve as a buyer are protections now it's a very clear process there's forms that need to be signed to remove each of those contingencies now sometimes we remove several at once sometimes in most cases we'll remove one at a time now we'll make it very clear that your deposit is fully refundable until we remove all three of those contingencies again we'll make it super clear and be very specific when it comes time to remove each of those so you know what you're getting into and we'll remind you that hey at this point we need to know whether you're serious about proceeding or whether maybe this isn't the right investment because we don't want to put your deposit on the line and risk losing it which in fact we've never done with a buyer ever before so you're in good hands one other thing that we do discuss in this escrow period that's the time that we're going to have access to investigate the property so we're going to be able to get the termite inspector out a home inspector a plumber who comes out here to make sure that the sewer line is in good shape sometimes we get a roofing inspector out there this is the time where we investigate the property we have a long list of vendors that we trust we schedule them right when our offer gets accepted and their job is to pretty much look under the hood of the car make sure uh how's the plumbing how's the electrical how's the roof the major components and in times the properties will need work we negotiate every day and so at that moment is when we advise you we're going to help negotiate repairs asking the seller to fix these items that we found or we're going to ask for the seller to lower the price or give us a credit now these are all things that happen in escrow but uh just some important facets you don't buy the property as is right you don't have to you're not going to lose your deposit and we are given a window of investigation period at this moment we're talking every day several times a day and we're advising you the entire the entire process once everything's done we close the property you get the loan and now you're the new owner our job is not done yet a lot of other agents jobs are done when they close the the escrow they get paid for their time we stay on we have extensive appraisal property management background and that's when we advise them with forms how much to lease your property out for dealing with some of the tenants that have stayed in place notifications turning utilities on in your name which we know sometimes doesn't get done properly which gets me to step seven which is ownership let's talk about ownership caleb just kind of give us an overview of what that's like once we're finally there the final step of owning our first investment property now that we're almost through the process again like one said we don't just go away once escrow closes you know we're here as your advisors to guide you through that initial phase of ownership because we acknowledge that this is your first go at it so you know when when you first take over the asset you want to make sure that you have the leases in place we'll handle a lot of this in escrow but to have your system set up to where you have the leases easily accessible we'll let you know when it's time to maybe raise the rents you know there's a lot that goes into it so again having the property management background owning buildings ourselves we've uh you know done this for a really long time so we could certainly guide you and position you to have a smooth transition into that early phase of ownership so you know making sure that the property is being maximized so obviously you're buying this because of the income that it produces and there's certain changes there's tweaks and improvements that you can make to the property to make sure that you're maximizing that investment so you know we'll come in we'll take a quick look at the units and we'll say hey you know you could improve the flooring you could slap some new paint on the walls maybe add laundry wherever possible parking as you know in southern california is always a challenge so anytime you can give parking to a tenant not only is that going to allow you to maybe ask a little bit more for the rent but you're giving the tenant an amenity that's going to improve their quality of life which in turn makes them stay for a lot longer the air conditioning is always a big amenity and when you're able to amenitize a unit the tenant's going to stay longer they're going to be happier overall and ultimately that's going to lead to less headaches for you as a new owner we're not going to manage the property for them but we're going to kind of oversee the ownership for you one of the things that caleb mentioned was we try to find out where can we add more parking where can we maybe add a patio area that maybe was a common area but maybe we could enclose it make it be private to the unit and where can we add laundry now all this stuff takes money you need to have a good list of contractors and that's a benefit about working with us is that once the transaction is done once you're the new owner you have access to all the vendors that we have and the vendors that we have we've used for years we trust them and they are more than willing to help our clients when we reach out to them so we don't close the transaction and go away in fact we play an active role in making sure that you're making the right decisions so with that being said those are your seven steps we know you're going to have more questions this is just the first seven steps in purchasing your first property and i guess the next step would be scheduling a an appointment with caleb and i so we can learn more about your investment goals we pride ourselves on helping everyone at every stage of ownership and so having that consultation is the next natural step again so we can understand your motivations come up with a strategic plan to help you succeed especially when the market is super competitive and we look forward to hearing from you because we take pride in what we do and we want to help you on your way to financial freedom

Channel: Sage Real Estate

Views: 70,265

Keywords: real estate investing, multifamily real estate, first time multi family home buyer, buying multiple rental properties, buying multifamily property, how to buy multifamily properties, buying rental property, first time buying multifamily, first time buying a house, first time real estate investor, new real estate investor tips, new real estate investor, real estate investing tips, how to start real estate investing, Basic Steps, First-Time, Investors

Id: SDrtXcOBKZA

Length: 16min 22sec (982 seconds)

Published: Mon Sep 27 2021