EP #24 - 10 Steps To Buy Your First Rental Property (2024 Ultimate Guide)

In this episode of the Financial Freedom Fighters Podcast, Jacob guides you through the 10 essential steps to buy your first rental property. From determining your goals and budget to finding an investor-friendly agent and getting your property rented out, this comprehensive guide is packed with practical advice and tools to help you start your real estate investing journey. Join Jacob to take the first steps towards achieving financial freedom through real estate.

FREE Real Estate Investing Tools & Resources:
https://www.cashflowsaga.com/links

Book a Free Strategy Call:
https://tinyurl.com/k4vpbd5u

Connect with Jacob:
Instagram: https://www.instagram.com/cashflowsaga/
Website: https://www.cashflowsaga.com/
YouTube: https://www.youtube.com/@cashflowsaga
Twitter: https://twitter.com/cashflowsaga

Connect with Mike:
Instagram: https://www.instagram.com/realtormichaelmagno/
Website: https://themagnogroup.com/
YouTube: https://www.youtube.com/@realtormichaelmagno

Transcript

Nancy: 0:00

This is the Financial Freedom Fighters Podcast

Jacob: 0:13

You've been thinking about this for months, years, even, you've known for a long time that real estate is a worthwhile investment, but it's always been something theoretical, something in the far off distant future that you'll get to eventually, but something's changed in you. Maybe you don't want to be a tire kicker anymore, or maybe you just want to get a little bit more serious, or maybe that nine to five. Rat race grind has finally gotten to you, whatever the case, you decided that this year is going to be the year that you buy your first rental property. And you've come to the right place. My friend in this video, we're going to be going through the 10 steps to acquire your first rental property. As somebody who went through this process several years ago, I know exactly how daunting it can be, but once you see and understand all the steps you see, it's not that bad. So without further ado, let's hop into it. Step number one is determining your goals and budget. And a lot of people skip the step. They just want to dive right into the world of real estate investing without having a vision, without having a North star, without having a plan. And that is a recipe for disaster. Take driving a car, for example, as an analogy, if you don't know where you're going, you're going to be driving aimlessly for miles and miles and miles. Wasting gas. And the same is true for real estate investing. So before you jump into the world of real estate investing, you need to get clear on a couple of things. You know, what are you trying to accomplish? Are you trying to replace your W2 income? That's great. That's what I'm trying to do. What is it timeframe that you're trying to do that? Are you trying to replace your W2 income in two years? That's going to lead you down a certain set of strategies, a certain path, or are you trying to do it in 10 years, 15 years, right? Those are all. Very, very different scenarios. And it's going to lead you down certain paths in real estate investing. Right? So get super clear on the timeframe. Also, how many rental properties do you want to own? Do you want to own hundreds of units, hundreds of doors, or do you want to just own five to 10 solid rental properties, right? These are very, very important questions to answer before you jump into the world of real estate investing, because again, it's going to guide every single decision that you make. And then lastly, how much money do you realistically have to invest in real estate? Do you have 20 to 25, 000 a year that you can dedicate to acquiring more rental properties, or do you have 50, 000 a year or even more? If you're not hitting that 20 to 25, 000 range a year that you can invest in real estate, I would say you should focus more on earning and saving before jumping into the world of real estate investing. But once you have about 20 that you can set aside every single year, then I could say that you can start to make a dent in your rental savings. Property investing. So get super crystal clear on your goals and your budget. And then you can move on to step number two, step number two is defining your property selection criteria, AKA defining your buy box. If you don't know what you're looking for, then you're never going to find it. And your buy box breaks down into four specific elements. The first element is the property type. What type of property are you trying to buy? Do you want to buy a single family house or do you want to buy a multi unit property, like a duplex, triplex, or a quadruple? Quad. Do you want to find something that's more of a fixer upper that you can add value, or do you want to buy something that's more turnkey and rent ready? Does the age of the building matter at all to you? These are all different questions that you have to answer before you start your rental property search. So nail down your property type. The second element of your buy box is the location. Do you want to be close to downtown or do you want to be more in the suburbs? Do you want to be in neighborhoods that have really good school districts or does that not really matter to you? There are rental properties everywhere and the location really really matters So have an idea of the location in which you want your rental property to be in So that is the second element of this Of your buy box location. The third element is price. How much rental property can you afford? And we, we talked about this a little bit in the budget section, but this is super important. If you have 20, 000 and you assume you're putting 20 percent down, then you're looking for rental properties in the hundred thousand dollar range. So understand your budget, understand your price. That's the third element of defining your buy box. And lastly is the financials. Real estate is a numbers game. And there are so many different metrics that you can understand, and I'll dedicate a whole video to deal analysis and real estate metrics, but for the purposes of the buy box, you just want to understand what net cashflow numbers are you targeting for a rental property? How much net cashflow do you want your rental property generate? And I think a realistic goal here is for a rental property to generate anywhere from 200 to 500 in cashflow. That's how much a good rental property should generate. And remember cashflow increases over time. So that's where you should be targeting, but some people are different. Some people are okay. If their rental property just breaks, even for example, or some people are okay with cashflow being negative, even because they're investing more for appreciation, but in general have a sense of the financial returns you're expecting your rental property to generate. So again, the buy box breaks down into four elements, property type. What type of rental property you're trying to buy location, what elements of the location really matter to you price, how much can you afford? And then lastly, what are the financial returns and net cashflow you're hoping your rental property generate. So all four of these elements are super important to nail down and it's really going to help you on your search for your rental property. Also, understanding your buy box is going to make you sound like a more serious investor. So this is a super important step to find your property selection criteria, AKA your buy box, write it down and move on a step. Okay. Number three, step number three is picking your target market. Where do you want to invest? You know, and with so many different States in the country and so many cities within those States and so many neighborhoods and sub markets within those cities, it can get really overwhelming to try to figure out where you want to invest in real estate. And it's actually a step in the real estate investment process that I see a lot of rookie real estate investors get stuck, they get overwhelmed, they get analysis paralysis, and then they just give up. But luckily if you watch this video and you followed steps one and two, then you're good. goals and your budget and your property selection criteria are going to rule out a lot of different markets. For example, if your budget is 200, 000, then you're only really going to be looking at markets where the median home price is 200, 000 or less, and it's going to rule out everything else. If you're prioritizing achieving cashflow, then it's going to rule out a lot of different markets where cashflow is very hard to accomplish, like San Francisco or Los Angeles. Or New York. So don't get overwhelmed, start with your goals, start with your budget and start with your buy box and rule out all the other markets from that point, you want to write down a list of maybe three to five markets that are interesting to you. And then you'll conduct some research is the population growing or declining. What are the jobs look like in this market, right? What are the median home price values? What is the average rent? There's a lot of different things to research and it can definitely get overwhelming. That's why I built my free market analysis guide. It's going to help you point out the specific things that you should research when looking into different markets. And it's also going to give you a template that you can fill out to keep your market research, super, super organized. And you could get that for free down in the link in the description below. So write down your top three to five markets, do your research, but time box it. Don't spend too much time in this step. Give yourself some time to research and then move on to the next step. Because again, you can make and lose money in any market. And there's no such thing as a perfect market. You just have to pick the market. That's right for you. And then move on to step number four. Step number four, finding an investor friendly agent, real estate investing is a team sport. And the most important member of that team by far is the real estate agent. They are going to be your local market expert, your boots on the ground. And for a lot of you, they're going to be a part time therapist because buying your first rental property is incredibly nerve wracking and your real Agent is going to support you through all of that. Especially if you're an out of state investor, I live in the San Francisco Bay area, my rental properties are in the Midwest. And the reason that I have confidence in doing that is because I have the local market knowledge of my real estate agent that I trust. So now that you've picked your market, you want to make a list, all of the potential real estate agents that you can work with, and you want to start to contact them. And interview them, right? See if you have a good rapport with them. You're going to be spending a lot of time with your real estate agent. So you want to make sure that you can have a good working relationship with your real estate agent, interview them, get a sense of their experience. Do they have rental properties themselves? I would never personally work with a real estate agent that doesn't also own their own rental properties and also make sure that they specifically work with investor clients. An agent that is used to working with first time home buyers is very different than an agent who is used to working with investors. They know how to analyze data. deals, they understand cashflow, they understand the mindset of an investor. So that is very important to find an investor friendly agent. And in terms of finding that agent, I would start with biggerpockets. com. They have a free agent finder service. That is great. So I would start there. So now that you've picked your market, write down a list of real estate agents. That are investor friendly agents interview those agents and narrow down on one that you want to work with and then move on to step number five, step number five is getting pre approved with a lender. The great thing about real estate is you can borrow the vast majority of money to purchase the real estate. You can borrow 75, 80 percent sometimes more to buy the real estate, which is great. But in order to do that, you need to get. Pre approved with a lender. The pre approval process is pretty straightforward. You're going to meet with the lender to submit a bunch of documents to that lender, your pay stubs, your tax returns, et cetera. They're going to check your credit score and they're going to run an analysis on all of these factors about you as the borrower to determine how much the bank is willing to lend you on a particular property. And that amount is the amount you're going to be pre approved for. And that's going to determine your bond. budget. So this is a very important step. Most real estate agents will not take you on as a client unless you have a pre approval from a lender in terms of finding the right lender to work with. Most real estate agents have lenders that they work with and prefer to work with. So I would start with a referral from your real estate agent. And once you have your pre approval from your lender, then you're ready to move on to the next step. The next stage is finding a pre approval. Property manager, like I said before, real estate investing is a team sport. And at this point, we've already found our real estate agent and we've already found our lender. But the last team member that is going to be critical to this process is your property manager. Your property manager is your own sun hero. They're going to be managing the day to day operations of that property, which makes real estate investing more passive for you, the investor. So they are an. Absolutely critical team member. Unfortunately, there are a lot of property managers out there and not all of them are good at their job. So it's very important that you find a property manager that is competent, one that you can have a good working relationship with, and one that you can trust in terms of finding a property manager. I would lean on your investor friendly agent. They'll likely have a bunch of different contacts or lean on referrals from other investors that also invest in you. In that area. So I would interview property managers, see if you have a good rapport with them, see their experience level and see how many units that they manage and pick their brain about the local market, right? They're going to have a lot of knowledge of the rental markets and, you know, what units tenants like, what neighborhoods are doing really well and what neighborhoods aren't doing really well. And so they're going to be a wealth of knowledge. So interview a bunch of different property managers and nail down the property manager that you want to work with. And then at that point, That point, you have your real estate agent locked in, you have your lender locked in, and then you have your property manager locked in and you are ready to start looking at deals and making offers. Step number seven, analyzing deals and making offers. Now we're getting into the fun stuff. At this stage, your real estate agent is sending you deals that fit your criteria. It is your job as the investor to make sure that those deals. Cashflow. This is where you have to analyze the deals very, very closely. And this is important because most of the properties that are sitting on the market on Redfin on Zillow, they just would not cashflow. And so you have to know how to analyze these deals. Luckily, I built a free rental property calculator that helps you analyze deals in minutes. You can get that for free down in the link in the description below, I will dedicate an entire video to how to properly analyze deals. So I won't go too deep in this video, but just know that a rental property operates just like a business. It has. Income in the form of rent. It has a bunch of expenses that you as the landlord are responsible for repairs and maintenance, certain utilities, landscaping, et cetera. And when you deduct all those expenses from your income, what is left over is your net profit or your net cashflow. So every single deal that you get, you have to analyze whether or not that property will cashflow. And if it does cashflow and it meets your goals and criteria, then you have to start making money. Offers. You have to get in the habit of making offers because real estate agents hate buyers that don't make offers. Remember their paycheck is based on the amount of properties that they close. So they only want to work with serious buyers. And if they're sending you deals that meet your criteria and they cashflow, then you have to be firing off offers. So again, your agent will be sending you deals. You plug that information to the rental property calculator, figure out if the property is going to cashflow. If it does cashflow, you fire off that offer. And eventually one of those offers is going to hit. And that's when we move on to the next stage. Step number eight, conduct due diligence and inspections. At a certain point, one of those offers is going to get accepted. Congratulations. Now the real work begins. Now you have to inspect. This property and make sure it's truly a winner. At this point, you'll have a fixed amount of time where you work with your real estate agent and they'll arrange for all the relevant home inspections that need to happen. So you can actually make sure that this property is something you want to move forward with. The home inspectors will come in and they'll look at everything. Every nook and cranny of this house, they'll generate a very long 50 to 100 page report. That's going to look like a doomsday report. It's going to call out everything that's wrong with the property. It's probably going to freak you out. Definitely freaked me out the first couple of times, but that's okay. You just have to look at the inspection report and make sure the big ticket items are okay. And to help you do that, I built a free rental. Property inspection checklist that you can get for free in the link in the description below. After the inspections are done, you have to decide, is this a property? I actually want to move forward with and move to close. Now that you've decided that you want to move forward with the property, then we will officially move to close at this stage, you're going to wire all the down payment money and the closing costs of the title company, which is definitely nerve wracking, but it's going to be okay. And the notary is going to come to you. To you to do the official signing of all the documents. Once the money has been wired and all the documents have been signed, you are now officially the proud owner of your first investment property. Congratulations, but we are not done yet. There is still one final step in this process. Now that you've officially closed on the property, it's time to get it rented out. So you can start generating income at this stage. Your real estate agent will hand the keys to your property manager. Your property manager will come in, make sure the units are rent ready, and they'll start marketing it. To perspective tenants at this stage, you just have to be working with your property manager, make sure things are moving along and hopefully it doesn't take too long before you get a market rate tenant in there and you can start collecting rent at that stage. When the property is occupied and is generating income, your transformation to becoming a real estate investor is. Is complete there. You guys have it. The 10 steps to buying your first rental property. I hope you found that video helpful and that you have a better understanding of the overall process. I know it can seem intimidating, but I promise you that it gets easier and easier each and every time. And the pursuit of financial freedom is absolutely worth it. In the next video, we're going to be breaking down how to analyze deals. So make sure to hit that like and subscribe button so you can catch the next one. That's all I have for you today. I will see you in the next video. Peace.

Nancy: 14:58

Goodbye