6 Months Until First REI Property: Priorities?

Question

My wife and I are probably about 6 months away from launching into buying our first property. I have been reading BP articles and listening to the podcast and I've learned a lot. I'm so glad I found this place. I'm new to the forums, and I wanted to ask what I should be focusing on in-between now and when we buy our first property.

I'm curious about things like: who do you need on your team before you start, when should we start looking at financing, realtors, etc.?

Thanks!

I'm curious about things like: who do you need on your team before you start, when should we start looking at financing, realtors, etc.?

Thanks!

Jeremiah B. · Answer

Hey Darren,

Props on plan!  If I were 6 months out, I would have a todo list of something like this:

1 - Get your financial house in order.  While everyone will agree that this is important, there will be a lot of disagreement about that this means.  Personally, I think you should have 20% down, plus 5% closing costs plus 5% repair fund plus a personal rainy day fund before you close.  That's  lot of money, but you have some time.

2 - Look at a ton of houses and start doing pro formas.   It's probably too early for you to have a Real Estate Agent, but I would start to really dig into the market that you're considering.  You should spend a few hours online each week getting a feel for what is out there and what is selling.  Look at every house within 5 miles and $50K of your target market.  Look at Craiglists to track rentals and rents.  If a place looks interesting, spend 5 minutes and plug the info into a pro forma.  I spent nearly 4 months, looking at nearly 1000 houses and completed well over 200 pro formas before I made my first purchase in a new market.  One popular pro forma is through BP: http://www.biggerpockets.com/files/user/JasonScott/file/20-sfh-rental-analysis

3 - Educate Yourself.  Personally, I would listen to Jason Hartman's podcasts (skim for some relevant ones) and read  "Hold". And spend some time on the BP forums - I've learned more from these threads than any other location.

When you're closer to being ready to buy (maybe 2 months out), that's when you can start building your team.  You probably need a Real Estate Agent, Property Manager and Lender all lined-up before you put any offers in.  But, any one of these can probably refer you to the other two.

Best of luck!

Curt Davis · Answer

Call me crazy but one thing to consider is maybe buy your first property from a legit turnkey operation.  Though you might pay a little initially bc of the service you would most likely save money in the long run as if you have never purchased a rental before you are not ready to be doing any renovations.

Simply get with a turnkey company and let them help walk you thru the process.  They will have financing lenders for you to work with.

This is just one way to look at this process.  Others will tell you to do this on your own but if you dont know what to do or where to start then consider it.

Question, are you buying local in your area or out of state?

William Hochstedler · Answer

I respectfully disagree with @Curt Davis and Account Closed

A great number of successful investors got into this business almost accidentally.  Either they decided not to sell their primary residence and kept it as a rental or stumbled upon an investment opportunity that fell into their lap (grandma's house).

Of course it would be helpful to know more about your situation, but I would recommend just the opposite--as the best way to learn is by doing.  Also, what are you looking to do from a flip or hold standpoint?

If you own your own residence, look at that transaction as a template.  Were you impressed with your real estate agent?  Did you buy correctly from a market perspective?  Would your own property cash flow if you were to rent it?  Was the home inspection helpful? Were there problems or issues in the transaction?  Did your lender seem knowledgeable? Etc.

I'd pick a geographic area that seems stable, familiar, and matches your risk profile (crime rate, tenant pool, job market, etc).  Ask for investor friendly agents and lenders here on BP or at your local REIA.  Have a real estate agent set you up on their MLS to send you all activity including under contract, expired and sold and watch the market.  Talk with a lender to understand your borrowing options.  As a contractor, talk to your contacts in the trades and see if any colleagues of yours have interesting resources.

As you tell people you are actively looking for properties, you will get leads.  Use these suggestions to further hone your criteria.  At some point, you will see something that looks compelling (or even better).  Make an offer, and come back to BP and your other resources as sounding boards.

If everything looks good, pull the trigger and have fun!

Good luck.

Wm

Rob Anderson · Answer

@Darren Hibbs First of all let me say congrats on your new journey and welcome to BP!! I also have to echo @Jeremiah B. as he hit the nail right on the head. Put yourself in a position to buy. Meaning. Get your finances in order so when that deal of a lifetime comes around you can scoop it up. Keep learning, familiarize yourself with the market so you can identify that "deal". Meet local investors (this is something that i have really come to value). Not only is it a huge source of info on your local market, its a mega motivational factor meeting local people that have done what you wish to accomplish in the future.

As far as building a team there was a recent podcast you should listen to in which @Joshua Dorkin and @Brandon Turner  talked about building it organically. Meaning build your team as you need them. Don't go out and try to find the best contractor until you have a project for him.

Robert Leonard · Answer

@Darren Hibbs your profile says you are a contractor, but not what type of contractor?  My first thought is that if you are a building or remodeling contractor, you have a huge advantage in this business.  Buying distressed properties and making them market ready is where a huge amount of the profits in this business come from.  Being a turn key investor and buying turn key properties is a good option for some investors, but I think a contractor has advantages that you would bypass if you choose to buy turnkey (all of the work to rehab is already done and usually includes PM).  Buying distressed properties is half the battle, the other half is dealing with contractors and getting the repairs/updating completed, which you may already have the capacity to do in your business?

As far as building your team, you can't start too early to build relationships with people that can help grow your business.  You want to get to know who are the other investors in your area and how you can help them and vice versa.  I know lots of investors who are always looking to get to know good contractors.

Real estate agents are not educated on real estate investments as a requirement to get a license.  Generally they are required to know what the law requires for the purchase and sale of property.  That's why YOU need to know what your criteria is in the properties you want to buy as investments.  You can find an agent who knows about investing, but you have to seek out agent(s) with that knowledge, a small percentage of them have it.

As far as property management, I recommend you read "The ABCs of Property Management" by Ken McElroy to get a good overview of things to consider in your decision to self manage or hire a PM.  I know lots of people love college rentals and make good money with them, but for me they are more management intensive (due to turnover)than what fits my business model.

Engelo Rumora · Answer

Hi Darren,

"Business is easy, people make it difficult"

Make sure to have right people that will have your best interests at heart no matter which way you decide to go. turnkey or by doing it yourself.

Don't succumb to any pressure tactics or sales gimmicks and be patient.

Only proceed when you feel comfortable that the time is right, also don't become a victim of analysis paralysis.

Just my quick 2 cents.

Thanks and have a great day.

William Hochstedler · Answer

@Darren Hibbs

My apologies.  After looking over the post, it sounds like it's your first purchase of any kind, not your first investment property.  (Although, it can be argued that any purchase of real estate is an investment).

That being said, the first thing to do is find a good real estate agent.  As a buyer, it generally costs you nothing as the seller typically pays both sides of the commission.  If you find something that is not listed on the MLS, it's probably worth paying a commission for guidance through all the paperwork (and relationship building) on your first one.  Moreover, a good agent will help you define your criteria and provide introductions to lenders, title companies, etc.

I got into real estate because, when buying my first house (primary residence), I picked up the phone book and signed with a random Coldwell agent.  I quickly found myself in the drivers seat and realized after shopping for 3 months, I was better able to find value in my market than the agent I hired.  I needed the agent to guide me through the transaction process, but not to help me find my house.  I did 50 drive-by's a week and was the one who found the property we finally bought (which I still have as a rental).

The process was so much fun that I went and got licensed knowing I could certainly do as well as the agent I hired.

Account Closed Thanks for the kind words.

Wm

Darren Hibbs · Answer

Hey guys, sorry I haven't replied. I must have turned off some alerts or something in my settings.

Anyway, I really appreciate all the advice. I have purchased two homes already, both primary residences. My wife and I are taking 6 months to save up the money we need to buy. We look to buy one or two properties a year, and I'd rather have duplexes or fourplexes, if possible, but most of them that aren't overpriced are in very low income areas. Thoughts?

I built a pro forma spreadsheet before I found the BP one, but it hits all the same points. I was a project manager for a highway contractor (not anymore) and my largest project was $45 million, so my standards are a bit high when it comes to contractors. Sometimes I have a bit of trouble getting along with the guys who roam around the renovation world.

@Jeremiah B. , I like 1,2,3's. Thanks. That's kind of what I wanted to know--is it too early to be looking. Good advice. And @Engelo Rumora that's so true--people make things hard, but they're what make it worthwhile. It's the catch-22 of life. Maybe I'll start hanging my flag out telling people we're looking and see what kind of referrals we get for our "team."

Thanks to everybody, and sorry it took me so long to reply. I'll find what I broke in my alert settings.

Derrick Craig · Answer

@Darren Hibbs

Keep us posted on your purchase...

Wendell De Guzman · Answer

Why do you need 6 months to buy your first property? Do you need to save the money for downpayment?

6 Months Until First REI Property: Priorities?

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