Get Pre-Approved BEFORE You Buy Your Investment Property

Let’s face it — there are a million and one ways to invest in real estate. The method that I’d like to focus on today is the strategy where you are purchasing a property with your own money with the intention of renting it out. It’s not everyone’s strategy, but it is a traditional way to “get in the game,” if you will.

In this instance, you’re going to be putting a 25% down payment on the property (let’s say it’s a single family residence for the sake of argument), and you’re going to acquire a property that’s already listed for sale on the local MLS by another real estate broker.

Do you remember when you were growing up and going to school? Like all the way back in first or second grade? You and your friends probably debated the question, “Which came first, the chicken or the egg?” Maybe you even debated it with your teacher or your parents… who knows!

In real estate investment, that question translates to, “Which comes first, a lender or a real estate agent?”

I’m pretty sure that this is debated constantly in the residential real estate arena because that’s where my expertise lies. (I’m not sure about commercial real estate, but I would assume similar results!)

It’s a very healthy debate, and both agents and lenders will definitely have their sides of the story as to which person you should contact first. Should you contact the real estate agent and have them find you a lender? Or should you find a lender and have them find you a real estate agent?

My opinion is slightly biased in this instance, but let me give you my perspective, and you tell me if you agree with it.

I think you should contact and be in touch with a lender before you even go out and find a real estate agent.

Here’s Why

The first most obvious reason to go to a lender before you go to a Realtor is to get pre-approved. In today’s sophisticated real estate market, it makes absolutely no sense to go out looking for property without knowing what your maximum purchase price is. A good lender will be able to customize your pre-approval letter to each and every offer you submit on a property. Remember, a pre-approval is expected in today’s market. Be proactive and learn how to get a mortgage preapproval, its easy and painless.

Besides, most top real estate agents are too busy to waste time driving around and showing property with “tire kickers.” You know, those folks that are just window shopping? The top agents focus on money-generating activities because they are the ones doing the deals and getting it done. Imagine how much time a good agent would waste if you didn’t get pre-approved to buy a property because you had a derogatory credit or something like that? The answer is: a lot!

The second reason is that an established lender will be able to point you in the direction of a good real estate agent. (The agents that are actually out doing deals constantly.) Think about this reason for a second. When a lender provides you a referral for a real estate agent, it’s usually someone they know, like, and trust. And quite honestly, it’s probably someone they’ve conducted business with in the past. They know how the other person works, what to expect as far as communication, and just downright have a good gauge as to what to expect from the referred real estate agent.

Finding a Good Agent

I can tell you from personal experience that when a client wants to use their friend who’s a Realtor, the results aren’t always up to par. It really doesn’t take much to get your real estate license these days. That’s not to say that it hasn’t worked well in the past because it has. It’s just saying that the percentage of success is smaller.

To be fair to the agents out there, good business goes both ways. I’ve seen great real estate agents go with a friend or family member who’s a “mortgage broker on the side,” and the results have been just as disastrous. I know it’s hard sometimes to trust someone you’ve never met and their professional judgment, but going with a good lender who can refer you to a good agent is generally the way to go.

There you have it. Two solid reasons why you should get pre-approved by a lender before you actually go out and find yourself a real estate agent.

What about you? What other reasons can you think of as to why you’d want to find a lender before anything else happens? Or are you on the other side of the coin?

Submit your comments below.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.