There are a lot of people, today, that want to create the real estate Empire, but there is always that hurdle of your first property. You do not need to own a real estate trust or real estate investing companies to buy properties. In fact the majority of investors that want to get into real estate, don’t. This is simply because they commit to that first property that would build up their confidence to keep going. These are not some steps you find in a real estate investing reddit pages so bookmark this blog and come back to it when you need a refresher.
Step 0: Start Saving
This goes without saying but real estate has a huge advantage that all investors should take advantage of, and that is Leverage. So the first thing we need to talk about is the down payment. Typically in the real estate market lenders like Banks would like to see investors put down at least 15% to 20% of the value of the home that they are buying. This means that for every $100,000 of real estate that you own you would need to put down about $15,000 to $20,000. Therefore your Step Zero is to save a good amount and more, I would say a good conservative amount would be $35k to $40k.
Step 1: Build Up Your Credit
Your credit score is a huge indicator for lenders on how responsible you really are. Do you make your payments on time? If not start making payments on time. Is your credit utilization very high? if so, you need to start using less of your credit. A good amount of credit utilization is about 15% to 20%. There are multiple little tweaks you can make in your lifestyle to improve your credit score. And a good area to shoot for a 720 or higher. If you want more tips to improve your credit score dramatically skim through our blog on credit score you’ll find more information there. The higher the credit score that you have the cheaper it is to get your loan, there for the lower your payments and your expenses. This would increase profit margins dramatically.
Step 2: Talk To A Lender
This is a very important step because a lender will tell you how much real estate you can afford for the situation on your end. They will tell you how much interest will be paying, what is the maximum home value you can afford for the capital you have saved up. There’s nothing worse than going out finding a home that you want to buy and then finding out from your lender that it is off your price range. Also talking to a lender means that you need to have all the paperwork ready which includes your tax return, credit score, etc. Once you do this you’ll be the person who. Will buy a property the fastest because you have everything ready with your lender and in real estate timing is key the faster you can do things the more likely you’ll get a property that you like.
Step 3: Find A Property
If you’re living in an area that is very expensive such as California or New York, I recommend you look for properties out of state. That is because those properties are more like it a cash flow, and bring in a higher ROI. Of course, buying an out-of-state property carries its own risks because you will be a lot more dependent on outside or information. If you follow the steps thus far then I would go for properties that are in the median price of the area that you want to buy-in. This will allow you to Target the biggest buyer pool possible and give you a lot of options to choose from. This also allows you to compare prices and choose the best property for its price and buy it at a discount to gain Equity from the home as soon as you buy it. For this, you can visit multiple sites including the MLS, but you can also talk to Realtors to find you deals that are under market value that are in the middle range of price in the area you want to buy in. Also, buy in areas where income taxes are a lot lower such as Texas or Georgia this will allow you to decrease your tax payment at the end of the year and keep more of your income.
Step 4: Calculate Cashflows
Why you’re skimming through properties you don’t have time to calculate cash flow and profits on every single one otherwise it’ll take you weeks to find a property that’s worth it and the cash flows. This is when the 1% Rule and the 50% rule apply. Let’s scene example: what time are you looking at a property that’s worth $200,000 according to the 1% rule the property should make you $2,000 of Revenue every single month, and according to the 50% rule all expenses including interest payment should be about $1,000, therefore, you would be cash flow in $1,000 a month. If your property does not fall into these categories and numbers, you should strongly move on to another property otherwise put this on the shortlist and keep looking for other properties. Once you have your shortlist of let’s say fifteen properties you go into more depth of all the numbers all the prices and compare and contrast which deal is the best. Once you have done this you should be able to find one deal that is at the perfect discounted price, and cash flows consistently at a high amount every month.
Step 5: Repeat
Congratulations, you have finally found your first property, your next step is to get your down payment for the 20/80 loan, And start making that rental income that everyone else is dreaming about. Now the next step is to do it all over again, save up some more money for the next deal and the next one after that. There’s never any limit to how many years you can do, and once you are satisfied and completely replaced your job income you have the power to quit and pursue other passions without financial fear and responsibility. I personally traveled a lot after closing my 5th deal. Once you take control of your life you can do anything you want. Good luck!!!
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