A well-defined buying process is vital for real estate investing. It reduces risks, avoids costly delays, and facilitates quick property acquisition once a suitable property is found.
Here, I will outline the process I recommend.
Before You Start
Begin by organizing your finances. Specifically, identify the amount of credit and cash necessary to purchase an investment property in your selected market.
For example, this is the cash and credit needed to buy a $350,000 property with a 30% down payment, 2% closing costs, and a $10,000 renovation budget:
- Down payment: $350,000 x 30% = $105,000
- Closing costs: $350,000 x 2% = $7,000
- Renovation: $10,000
- Total acquisition cost: $122,000
- Loan amount: $350,000 x 70% = $245,000
So, in this market, you are not ready to start if you do not have at least $122,000 and a preapproval for $245,000.
Define Your Goal
“If you don’t know where you are going, you’ll end up someplace else.” – Yogi Berra
For most people, the goal is financial freedom. Financial freedom requires a reliable income, which means your rental income continues, even in bad economic times.
There is a common misconception about properties and rent. Real estate never pays rent; the tenant who occupies the property pays the rent. So, income reliability depends on having a reliable tenant, not the property. A reliable tenant stays many years, pays the rent on schedule, and takes good care of the property.
So, instead of…