There are two primary ways to invest in residential real estate for the average person: flipping or renting properties. I'll be discussing the latter, purchasing income properties to hold over the long term because this is what is feasible for most people. A little about my background, I've helped investors purchase and sell residential income properties since 2003 and I was a professional property manager for 7 years.
Step 1 is to get pre-approved for an income property purchase loan so you have an idea of purchase prices and corresponding monthly PITI (principal, interest, taxes, insurance) payment. Income property purchase loans typically require 20-25% down. You'll want to make sure you go with an experienced loan officer, I can provide you with lender options that my other clients have used. Not all lenders are created equal when discussing rates, closing costs, underwriting, etc. Note, underwriting not only applies to your credit scenario but also refers to guidelines that apply specifically to the subject property and the purchase process. Some lenders have overlays (additional underwriting guidelines) that the house must meet to qualify for the loan. I can go into this more when I meet with you in person. Note, another way to acquire an income property is to purchase a new home and rent your current home, but this is only possible under specific circumstances. I can go over this option with you in more detail when I meet with you in person.
Step 2 is to interview one or more reputable property management companies to discuss rental rates, expenses and fees so you can get an idea about monthly cash flow and corresponding purchase price. I can share with you things to look for when you meet with potential property managers. I recommend that you find a property management company that only manages rental properties and does not also do real estate sales because typically they are stronger in one service over another. I've heard horror stories from my real estate clients that previously used Realtors for property management services. I've also dealt with Realtors that were primarily property managers and their lack of expertise in real estate sales was very apparent to me. Note, an alternative is for you to manage the property yourself. If you go this route, I can provide you with resources that will help you manage the property on your own. You should also discuss with your chosen property management company which cities have minimum condition requirements for income properties.
Step 3 is to discuss purchasing an income property with your income tax preparer so you are aware of income tax benefits and liabilities related to rental properties. If you have a financial advisor, you may want to discuss how purchasing real estate fits in your financial plan.
Step 4 is to take what you've learned from steps 1 through 3 to help you identify investment strategies, ideal purchase price and locations. Strategy refers to how you plan to build wealth using your income property and how that impacts area and purchase price. Other considerations are if you're going to manage the property yourself, your tolerance for risk and your preferences. I can go into this subject in more detail when I meet with you in person.
Step 5 is to choose a Realtor to help you find and acquire your income properties. I believe the two most important attributes of a Realtor are experience and ethics. First, is your Realtor a full-time Realtor that has been helping clients purchase income properties over the long term? I've been helping investors since 2003 and I was a professional property manager for 7 years. Second, is the Realtor looking out for your best interest and giving you his/her honest feedback? I've been able to stay in business since 2003 because I look out for each client's best interests and provide my honest opinion regardless if it benefits me in the short term. This has helped me stay in business since 2003. I've helped the majority of my clients with more than one real estate transaction and I've received family/friend referrals from the majority of my clients as well.
Step 6 is to discuss landlord insurance policy options with your insurance agent. Landlord insurance is very important and different than the standard insurance for owner occupied owners.
Step 7 is to start looking for an income property. For new investors, it's sometimes hard to change the mindset from owner occupied buyer to investor buyer. There are certain amenities that you may desire for a property that you're going to occupy, but that you should avoid as a landlord. I can discuss amenities you should consider avoiding when I talk with you in person.
Step 8 is to close escrow and prepare the home for rent. You property manager should give you advice on repairs you need to do for safety and compliance, as well as what repairs will help you achieve the best rental rate of return. Most property managers are even able to refer their vendors to you for repairs and some property managers can even manage the repairs for you.
I hope this information has been helpful. I'd love to have the opportunity to help you start building wealth through real estate investment! You may contact me at 800-477-0075 x 3 or visit my investor website for more information at www.NakanoRealtyIPS.com.
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