9 Steps to Own Your First Rental Property

Owning real estate is one of the best investments you can make. Over 90% of millionaires today got there through the real estate business. You want to get into real estate but you aren't quite sure where to start. This guide will help you through the whole process of buying and renting your first property- to set you on your path to financial freedom.

Step 1: Credit

The first step to be able to invest in real estate is to actually build up your credit score. Plain and simple you aren't getting around needing at least an okay credit score. This shows lenders that you are trustworthy enough with your own money, to give you their money. A great way to start is by getting a secured credit card. And then spend under 10% of the total allowed each month. And pay it off on time. And you will build credit.

Step 2: Money

Another fact of the matter is that you do need money to get started. Yes there are “unicorn deals” as they are called, That don’t require money or credit. But let’s talk in reality shall we. The reality is that these are not replicable, or findable for 99.99% of people.

So how much money do you need to save? You will need anywhere from 5-20% of the property price on average to buy a property. There are also other costs to keep in mind such as closing costs, renovation costs, inspection costs, and contractor fees. So really it depends. It depends on your situation. But to straight up by the property it will be anywhere from 5-20% down.

Step 3: Proof of income

The lenders will ask for proof that you have been making money, but its not good enough just that you have been making money but that you also have been making money consistently. If you are on salary or paycheck then they will usually take the last year of your income. If you however are more business orientated/freelance then they will usually want the last 2 years to make sure it wasn't just some fluke where you made bank one month. But will default on the loan in a few years.

[Note: Be careful not to go too aggressive on tax write-offs the year prior to trying to buy a property as it can lower what loan you can qualify for!]

[Tip: Check with a lender before you send your tax return to the state to see what you qualify for. This will let you know if you need to ease up or go harder on write-offs.]

Step 4: Get pre-qualified with a lender

Now assuming you have everything previously mentioned in order you will do something know as “loan shopping.” Loan shopping is when you go from lender to lender within a 30 day period to see what amount/rates each lender is willing to offer.

[Note: this will only affect your credit score ONE single time if you do them within 30 days. This is to encourage loan shopping for buyers.]

If you don’t do this step, what you can have happen is- you will go out searching, find that perfect property. But then when you go to get a loan, you can’t afford it. And so now every other deal looks like crap in comparison. So speak to a lender first, to get pre-approved to save yourself the heartbreak.

[Tip: Get multiple approvals from different lenders, just in case one of them “shits the bed” so to speak. And can’t give you what you need.]

Step 5: Look for a property

Now onto the actually fun part! Searching for your property to buy. After doing all the aforementioned steps you will know how much you can afford. So keep this in mind when looking. A good strategy for finding properties that will make you a good ROI (return on investment) is to-

• Become very familiar in your market. Learn about every new thing being built, every area that's booming. And then go 5 minutes away from that area. You want to buy here. As this area will naturally increase in price as people get priced out of the quickly developing areas.

• Another strategy is to focus on properties that need only cosmetic fixes. Cosmetic fixes always have the best ROI when doing remodeling. Because they generally are done fast, cheap, and they leave a visible change.

[General rule of thumb is that anything the tenant can see or touch will increase what the perceived value is, i.e. new paint, new hardware, new flooring etc.]

And then you just have to make offers! Don't be afraid to lowball the price a bit. You never know the situation with the seller- Like maybe they inherited this property and need to get rid of it fast and are just looking to make a bit of extra money. But do not be stupid. Don't miss out on a deal of a lifetime just because you were too stubborn to budge a few thousand dollars.

Step 6: Do inspections

Inspections are very important for you, the buyer. Generally speaking, for every dollar you spend on Inspections you will be able to get an equal return via credits on the loan. This basically means you can renegotiate the price with the seller, and bring up the things the inspector found.

You also want to bring in contractors to price the repairs (generally they will do this for free, because they want your business). This will give you a number to negotiate with. However even when working with the best top notch contractors just always add 15-20% on top of whatever price they said. Because things will inevitably come up.

After you do your inspections you will want to do the negotiating to discuss what credit you can get for repairs. This allows you to fix up most of the issues without going out of pocket. And if you fix the cosmetics upgrades mentioned earlier you will 100% get a ROI almost immediately when you have the house reappraised.

Step 7: Close on the Deal

Now you just have to wait for the bank to close the deal, this can usually take anywhere from 20-45 days depending on how much work you put in prior to closing. There's not much to be said about closing, it’s really just a waiting- and sending any requested information game.

Step 8: Start your minor cosmetic renovations

You will now begin doing minor cosmetic renovations. These renovations add almost immediate value to the property, allowing you to rent at a higher price. To first start renovation you will need to figure out what needs to be done first (kitchen, painting, floors etc). Then you will want to find and hire a contractor.

The best way to find a good contractor is via word of mouth, or yelp. A way to find word of mouth is when you see a property being renovated/that's been renovated and you ask for the name of the contractor. Many people will love to recommend their contractor because it can not only give their contractor more business but also it may lower the rate the contractor charges that person.

And then there is also Yelp. Just search up contractors in your area and look for ones with good high reviews. These will be the ones you want to hire. You always want to get multiple bids for the work, just to make sure you are getting the best deal possible and aren’t being overcharged. But don’t cheap out on hiring either.

[Note: Remember again, to add 15-20% on top of whatever bid they give you because as Marco’s law states “things that can go wrong, will go wrong.” Don't get caught with your feet flat so to speak]

Step 9: Find a tenant

Your last step will simply be to find a tenant. Finding a tenant may seem like a difficult tedious process but you can find tons of people to interview and check out by posting a craigslist ad for your property. It’s just the best overall place to find them.

You can also choose to hire a property manager instead, in which they normally handle finding tenants as well. But this will eat into your profitability so be aware.

Conclusion

So those are the steps to achieve the financial independence of your dreams through rental property investing. This journey is a long one. You can become a millionaire of one property with enough patience. Or you can grow your portfolio to hundreds of thousands of properties, and make some serious stacks of cash.

I hope this guide helps you through your real estate venture, and I look forward to seeing what you all can do with this information!