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SHOW NOTES FOR EPISODE 310: WHEN SHOULD YOU BUY YOUR FIRST PROPERTY?
Is there really a right time to buy your first rental property? If you want to purchase rental properties but are still uncertain about when to make your first purchase, then this podcast is for you. In this episode, Bill shares his own first property purchase stories, some lessons learned and six key steps you might want to consider before making your first purchase.
Here’s some information to help you assess when you should buy your first investment property:
Bill’s First Property Purchase
- We were preparing to leave Haiti after 12 years serving there as missionaries
- I was thinking about retirement and wasn’t really ready to retire
- I was exploring various options on what I would do when I returned to the US
- Received an unexpected inheritance check and was trying to decided what to do with it
- Was already heavy into the stock market but was concerned about its volatility and “having all your eggs in one basket”
- Was looking to diversify in another type of investment
- Had some friends that were successful investing in real estate
- Started to research the various types of real estate
- Read lots of books
- Listened to podcasts
- Webinars, boot camps
- Bought
- Was afraid to take the step
- My excuse was “I haven’t learned enough” (analysis paralysis)
- Decided on buy ‘n hold rental properties
- Found a turnkey company – it seemed like the easiest route (I learned later that that was not the best route for me)
- Hopped on a plan from Port-au-Prince, Haiti to Atlanta (bought a single family home) and then to Memphis (bought a duplex and single family home)
- Flew back to Port-au-Prince with my first three rental properties in less than a week
- The following month, I started receiving rental income
Why Haven’t You Purchased Yet?
Top 5 Most Common Barriers to Entry
- I don’t have the money (Episode #194)
- I don’t have the time (I’m too busy) (Episode #228)
- I don’t have the knowledge
- I don’t have the confidence
- I’m scared or I’m afraid
I might add…
- Waiting for the market correction to buy properties when they’re cheap
For those that are hesitating or are just uncertain, I’ve put together a list of things that can help you determine when it’s the best time for you buy your first investment property –
So, when should you buy your first rental property?
1. Know Your Why
Before you ask when, you have to ask why. Ask yourself this question, “Why do I want to invest in real estate in the first place?”
Most people would simply say because things like “I need the money” or “it’s just a good investment” or many other answers based on basic needs. And those are all valid. There are many reasons I have heard:
- I want to be financially independent
- I want to be my own boss
- I want to travel and enjoy life
- I want more time with my family
- I want to be free to serve and help others
- I want to be rich
- I’ve worked hard all my life and I now want to enjoy my retirement years
Your why is a very important question and that is where I would really focus first. In fact I have a whole episode just on “The Importance of Knowing Your Why” (episode #122). Check it out! There will be a link in the Show Notes.
2. Education
Next, get some basic knowledge
Get some basic education to understand what real estate is all about and what it isn’t. Real estate investing is a big area. Take a look at the various types of real estate investing strategies to see what appeals to you.
Good sources of research
- Books
- Podcasts
- YouTube
- Webinars
- Old Dawg’s REI Network
- BiggerPockets.com
- Boot camps, seminars
- Coaching
- Get a mentor
- Networking
- REI club
- Real Estate Meet-ups
Also, know what type of real estate investing you want to do. There are lots of strategies.
Real Estate Investing Strategies
- Wholesaling
- Flipping
- Rental properties
- Commercial properties
- Malls
- Strip malls
- Office buildings
- Multifamily/apartments
- Industrial
- Warehousing
- Raw land
- Ground-up development
- Self-Storage
- Deeds
- Liens
- Syndications
Read some key books to better understand these strategies. Some strategies are more active and some are more passive.
There are some great books on the Old Dawg website, in our Resources section – Our Top 20 Real Estate Investing Books that we highly recommend anyone considering real estate investing read. There will be a link in our show notes.
Also here is a podcast on how to get a free real estate investing education:
3. Do Your Research
Conducting real estate research is crucial whether you’re a first-time real estate investor or whether you’ve been doing it for years. Your research should include learning about the best investment locations and emerging markets
Find Your Market
Location is a very important component when it comes to real estate. Being well researched on real estate market(s) can make property investing a smoother, better-planned process. The best places to invest in real estate are usually ones where there is population growth, low unemployment, good neighborhoods, have good school districts, and have access to amenities such as transportation, restaurants, malls, parks, grocery stores, etc.
Some things to keep in mind when researching real estate markets are the general state of the economy, the job market and job growth indicators in a specific area. The more job opportunities there are in a town or a city, the more people will move there.
Additionally, cities where there’s a high concentration of students usually do well with real estate metrics because you know for a fact that demand for rental property is high.
Ultimately, doing your research will help you find a good location, and consequently, a profitable investment property.
Know the Law
- Learn about asset protection
- LLCs
- Tax Laws
- Landlord Friendly States
- AirBNB – If you’re investing in an Airbnb rental property, most recently, many cities nationwide have had legal battles regarding AirBNB. New York City, Boston, and San Francisco are all rather controversial cities when it comes to Airbnb rental properties.
Understand Loans and Sources of Funds
- Banking
- Types of loans
- Qualifications
- Hard Money Loans
- Private Money
- Seller Financing
- Syndication
4. Learn how to analyze properties
It’s crucial that before you buy your first rental property, you know how to analyze properties. A good rental property calculator or analysis spreadsheet or , is a tool that real estate investors use to calculate values such as return on investment (ROI), CoC return, cash flow, and cap rate. All it takes is some data input on your end, and the calculator does the rest of the rental property analysis for you – within a few minutes.
This tool will also aid you in conducting real estate market analysis. It will provide similar investment properties needed for real estate comp analysis. Real estate comps help you compare an investment property that you’re considering with other properties similar in size and location to determine what price to pay. With the investment calculator, you don’t need to manually look for the comps.
The rental property calculator is one of many real estate tools that have become quite popular among investors as they add the element of ease and convenience to an investor’s work routine.
5. Write a Plan
“Failing to plan is planning to fail.”
If there was an adage relevant to real estate, it’s this. Planning in real estate is a vital element to success. It involves multiple aspects. You’re essentially planning for investment strategies, a timeline to work with, and your finances.
And when it comes to investment property financing, things can get tricky. When planning your finances, you should be calculating costs, fixed and variable expenses, expected cash flow, (possibly) mortgage payments, among other things. Also, you should keep in mind that investment properties usually require a 20% down payment. So make sure you have that secured before you go ahead and buy your first rental property.
Now grab your notes and write down the following:
What is the cost of buying the investment property, and what is the cost to renovate the property? Are you attempting forced appreciation to sell, or are you renting your property out for rental income? Answering these questions will aid you in knowing what your finances will look like when you buy your first rental property.
Your plan doesn’t have to be complicated
- Just write it down – start out simple
- What is your goal for the year and work backwards
- How many properties do you need to make your goals
- What types (single family, multifamily, self-storage, mobile homes
- Cash flow goals (How much do you want to earn)
- Marketing (How you will find the right properties)
- Direct mail
- Postcards
- Record everything
- Revise it as you go along and start generating a “track record”
6. Know Your Finances
- Where are you getting the money to get started
- A self-directed IRA or 401-K
- Savings
- HELOC (home equity loan)
- How much in debt are you
- Real estate is generally considered to be a safe investment, but it’s a big one nonetheless. And you don’t want to be going into a big investment carrying previous debts. What debts might an aspiring real estate investor have? You may be carrying college tuition debt, credit card debt, a car debt, etc. Clearing your debts before you buy your first rental property can also be a way to mitigate some of the risks of real estate investing. Getting into an investment debt-free means that you have one less finance to account for.
Finally, Answer the Question: Are you ready to buy your first rental property?
- No one can make this decision but you
- If you’ve checked off the above things off the list, maybe you are ready
- Of course, they are all suggestions. You have to make the final decision
- Some real estate investors have bought their first investment properties without having planned well or not having researched the market well but they have still done well
- If you’re not sure, hopefully the above tips will help you decide when, so you can become a more successful real estate investor
Are you ready to buy your first rental property? Only you can decide. And if you aren’t ready, that’s OK. But if you are still wondering when the right time will happen – that’s up to you!
Don’t forget to check out our episode called “How to Get Started in Real Estate Investing.” There is a lot of good info there as well.
Well, that’s it for today!
This show was sponsored by CBRE
CBRE has the loan for your next refinance, acquisition, or value-add project! CBRE is the #1 Agency Lender and their loans offer great features such as non-recourse debt, which, unlike most banks, means your exposure is limited to the property only and not your personal assets. They also offer up to 80% leverage and interest-only periods, which can help you maximize your cashflow or pull out more equity. CBRE’s loans also offer the markets most competitive rates. In addition to traditional mortgages, their short-term bridge loan platform provides access to competitive financing for your rehab, renovation and value-add projects that might need a little TLC before you get a permanent mortgage.
CBRE is offering Old Dawg listeners a $3,500 credit towards closing costs. That’s right! $3,500 off your closing costs! You can lock-in the credit and receive an instant quote by visiting www.cbquote.com/podcast.
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Additional Episode Sponsor: Meno Studio – menostudio777@gmail.com
