How To Buy Your First Rental (8 Beginner Steps)

imagine a world where you didn't have to wake up early every day or drive to work or you know make some other company super wealthy and then before some rely on government social security and like maybe 50 years of retirement savings just to squeak by in the last few years of your life like what if you could have the opposite what if you could have time freedom like now or soon financial freedom more time to do the things that you want to do with the people that you love to do them with now that might sound amazing right but it's not always that easy my name is brandon turner host of the biggerpockets podcast and the truth is that life of freedom it is possible it is entirely possible but it's not going to happen by itself you're going to have to make some radical shifts in your life and i believe that one of if not the best ways that you can make that shift happen to make that life happen is through the power of rental property investing or buying rental properties now in this video i'm going to share with you the step-by-step process for acquiring your very first rental property but first let me share four reasons real quick why rental properties are so amazing now maybe i don't need to sell you on it but listen up this is cool first of all when you buy the right property you get profit every single month which we'll call that cash flow so each property is kind of like this little oil well like they pump money out of the ground 24 7. now if you get enough units in there you get you know 2 3 5 10 20 whatever you get enough you'll get that freedom that you want second when you buy real estate you get to 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 low as zero dollars down now more on that maybe in a second but here's the cool thing over time that loan gets paid off by your tenants so you might start by owing like 200 000 but in 15 or 20 or 30 years that's paid off to nothing but your property is worth a ton right it's still worth a lot but you don't owe anything on it anymore third over time rental properties tend to appreciate in value which means while the property is going you're paying off the mortgage it's actually going up in value now yes there are occasional ups and downs and dips in the cycle but over the long run it's always generally always been an upward trajectory now fourth there's a lot of amazing tax benefits to owning rentals and i don't want to bore you with all the details right now but trust me it's really awesome you can pay almost no taxes sometimes no taxes on the money that you make from rentals if you're smart so making a hundred grand from rental property investing is a lot different than making a hundred thousand dollars from a job you keep a whole lot more so how do you buy the rental property then how do you get started how do you buy your first well let's go through the steps right 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 reach more people with this life-changing message all right step number uno determine your market so the first step is you gotta find out where you're gonna invest like there's a million places to invest in real estate around the world but you need to pick one place it's nice to find your first deal locally or at least within you know an hour or two so dig into websites like realtor.com or zillow.com and start looking around your area at different properties to see kind of what prices look like kind of get a feel for for where prices are higher and where they're lower 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 mystery new place just find out what works and where it's working and do it there now where do you find those people well how about biggerpockets.com the world's largest real estate investing community with like 2 million members almost that's crazy by the way if you find that prices are just 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 my friend david green his book his book called long distance real estate investing it is fantastic all right now once you have your location nailed down you know where you're going to invest it's time to step into step number two and that is to get pre-approved to figure out your financing now for your first deal a bank or like a local lender is going to be a great way to get started financing your real estate deal they typically require 20 down and sometimes a bit more or less for a rental property but but if you're willing to live in the property first for a year like you buy duplex triplex four plex whatever you live in one of the units you can get it as low as like three percent down even zero percent if you're a va loan or usda loan so talk with some local lenders to see what you can qualify for what programs they have now if you don't have that much money or your flat broke completely you may need to spend time instead networking with other real estate investors in your area and others just professionals so that you can potentially partner with them on your first deal so you bring the deal and they bring the down payment now it's a bit trickier than what we just talked about just putting your own money down but in the words of jim rohn if you really want something you're gonna find a way if not you're gonna find an excuse so now you've gotten pre-approval i hope from a lender and you know where you're gonna buy so ready to buy no hold your horses john wayne before you start buying property you got to build up one more skill which brings us to tip number three learn how to analyze properties look knowing how to analyze a rental property is i believe the single greatest skill an investor can have now thankfully it's not really that difficult you can definitely do it and biggerpockets even has calculators on our website that lets you run the numbers on a rental property in less than five minutes but the key to this is understanding the actual income a property could produce which like a local property manager would be able to tell you in like a two minute conversation so find a local property management company ask them hey what is this property rent for you'll figure it out and then getting a real clear picture on the expenses that you're going to have every single month now that can be a little bit tricky i'll fully admit it but asking the right questions to the property owner or to the real estate agent once you start looking for deals and once those deals are on your on your desk that you're going to get the answers you need you're like well what is insurance cost call the insurance company right wonder what water bills cost call the water department look when analyzing deals i really look hard at two things what i want to look at is the monthly cash flow like the dollars that i end up with in profit every single month and i want that to be a few hundred bucks minimum like on a single family house uh and then equally important or maybe even more important is knowing what's called cash on cash return now this sounds a little intimidating but i'm gonna make it very simple it's just the return your money made in in a year compared to how much you invested like if you invested ten dollars into an investment and you made one dollar in profit that first year that's ten percent good job now if you invested twenty thousand dollars into a real estate deal and you made two thousand dollars in cash flow in profit during year one that's a ten percent return in year one ten percent cash in cash return now it's not a bad number to shoot for ten percent maybe you're gonna be a little bit more or less but that's usually in that ballpark so now you're a rockstar analyzer rentals you've done a bunch right so what comes next step four shopping for properties so at this point you gotta start looking at properties and trying to determine based on the numbers what could actually work out now for most people especially especially when you're first starting out i'd recommend starting with a real estate agent like find an agent preferably one who understands the investment side of real estate and then have them that agent will set you up with automatic emails for whatever kind of property that you're looking for in the area you're looking at it's really that simple talk to an agent be like hey i'm looking for duplexes in this town okay here's all the duplexes like you can also spend a lot of time on like sites like realtor.com or zillow.com and you can currently see what's currently for sale on those websites now there are other off-market ways to find deals as well but i don't want to spend a whole lot of time talking about that on this video because honestly 99 of you can find your first deal with the help of a real estate agent so you don't need to worry about the home run 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 though visit biggerpockets.com off market all right so step number five start analyzing a lot of deals now i know step three was on deal analysis why are we talking about it again well now we're gonna put the knowledge to use you're gonna actually start analyzing potential properties a lot of them you're gonna get really good and comfortable with deal analysis you know it's kind of like when i first started doing brazilian jiu jitsu like i didn't know anything i walked in there i didn't know anybody didn't know anything i struggled i got like pinned or choked out all the time or arm barred whatever but now that i've been doing it for almost a year i i still suck and i'm constantly getting beat all the time but i'm understanding a whole lot more like the other day i actually made like a 65 year old woman who was like 90 pounds you know tops i choked her out it was great not literally choked her out but you know i made her tap out it was a great moment right you know the point is you won't awesome you won't always be awesome at first analyze a few deals every day until you get something that you think you might be able to make it work and then step six make your offer look your real estate agent's gonna help you with this it's not that complicated but just you know in a competitive market you do have to be quick and smart you're going to also get rejected all the time it's okay real estate is a numbers game you know i probably honestly get maybe one out of every 10 or one of every 20 offers we make an offer on accepted but that's okay because i just make sure that i'm always offering enough properties i'm analyzing enough i'm offering enough that over time like i do get deals and i'm always trying to find ways to improve my offers as well what works better you know can i include a letter with it can i be faster now eventually i do get into negotiation with a seller and then from there hopefully get the property under contract now when you do get your property under contract you're gonna have to pay what's called earnest money now earnest money is usually around one percent of the purchase price so on a hundred thousand dollar property might be a thousand bucks and it's basically your pledge you're saying here this thousand dollars promises that i'm not going to just walk away from this deal and screw you out of all the weeks of hassle and time now that money is typically refundable to you as long as you either buy the property or you back out for a legitimate reason like you did an inspection and it was like you know you found out they're i don't know a meth lab in the basement all right now we enter step number seven due diligence so due diligence is all the stuff you do between signing the contract so now you're under contract and then actually closing the deal so first step schedule an inspection on the property then uh from a local property inspector your agent will have a good recommendation they can help you pick that the agent can also help you pick a title company which will help do the closing or an attorney and they can do all the paperwork there so agent will help you with that and if you're buying a tenant that already has sorry if you're buying a property that already has tenants in it you i want you to make sure you verify that the rental amounts that they said they were getting is actually what they got like verify all the income and verify the expenses also line up a property manager during this due diligence time if you don't want to manage it yourself get insurance on the property and then finally at the end of all that you're going to sign documents wire your down payment the bank's gonna wire their money in and you're gonna close on the property which is pretty exciting right but we're not done there's one last step you gotta manage the property step eight manage efficiently effectively and profitably your journey isn't over the best deal in the world can still be destroyed and bankrupt you if you don't manage the property correctly now maybe you're 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 a number of my properties but keep in mind it doesn't completely let you off the hook you still have to find and vet a great manager which can be difficult there's a lot of bad ones out there and you got to keep an eye on them ongoing because look the truth is nobody will ever care about your property the same level that you do i don't care what you're paying them like they're not going to care like you care now on the other hand you might self-manage you might take care of the tenants yourself which can be rewarded in its own way and we did it for years and you're going to save a bunch of money doing that too but managing tenants does require a bit of knowledge and systems and processes and knowing what you're doing now if you want to learn exactly how i manage my rentals my wife and i wrote a book on the topic called the book on managing rental properties you can get it from a library if you don't want to buy it or you get it from amazon they got like over i think it's over now or close to 500 five star reviews on that people really seem to like that book a lot or you get a biggerpockets.com store and get a bunch of bonuses with it but either way learn how to do it if you're gonna do it now if you like this video don't forget to click that little thumbs up button click clip i think i have the clip click that little thumbs up button below the video follow us here on bigger pockets for more real estate investing content and uh come follow me wherever you know i'm on instagram i'm like a 13 year old girl there so you can find me there at beardy brandon for biggerpockets.com my name is brandon turner signing off you

Channel: BiggerPockets

Views: 870,403

Keywords: biggerpockets, real estate, real estate investing, investing, rentals, rental property, investing in real estate, income property, bigger pockets, passive income, how to buy rental property, first rental property, rental property investing, real estate investing for beginners, how to buy your first rental property

Id: nb9gtT-BqRc

Length: 13min 35sec (815 seconds)

Published: Tue Nov 03 2020