Buying a new rental property, what step is first?

Question

Please help! We are hungry and motivated!

My husband and I have one SFR currently. It was his home when we met and we moved into my home and rented his out in 2019. It is doing very well and we are looking to invest in a second rental property, either another SFR or a MFR in the Findlay, OH area. I am not exactly sure where to start. Now that we have narrowed down our market/location, do I contact a realtor first, a lender to get a pre-approval, an investor (we will need an investor for the down payment), or do I need to have a specific property in mind and analyzed before pursuing any of these?

Also, at what point should we create a business or LLC?

Any advice would be truly appreciated!

Greg Bond · Answer

@Cindy Craft I would give them a call and ask if they manage the properties that they sell. I think this is key when buying turnkey because they already know everything about the property and the tenant. Usually you should have a guarantee on maintenance and tenant for at least 6-months, usually a year.

I see Findlay is near Cleveland, Detroit, and Columbus.

I know a great provider in Detroit personally, I sell turnkey in Orlando, FL and have networked with a lot of different providers.

If you need any recommendations, pm me 👍🏼

However, if you do go the DIY route, I would recommend again going to some REI meetups. Fixing for a flip and a rental are different and it's best to go to the people in your area to see the best practices and to network with wholesalers you can find deals from.

Michael Plante · Answer

If there is a way to over complicate things us humans will do it

1 go to a bank ask them to prequalify you

2 contact a couple real estate agents in the area you want to invest in. Tell them how much you have to invest and have them send you the properties

3 evaluate the best one.

4 put in an offer

5 operate it the way you are currently operating the rental you already have

Greg Bond · Answer

@Ari Hadar, I have bought properties from wholesales all the time and have sold properties wholesale.

To people who think wholesalers offer bad deals, I say - maybe you haven't talked to as many as you should have to find the right fit.

It took me awhile to find out who was credible and who was pushing garbage but it can be done!

Best of luck to you!

Aaron W. · Answer

@Cindy Craft Congrats on taking this journey!  You ask the million dollar question. The order of building the team can be a challenge.

However, before you begin, you should decide on what your goals are with the investing. Do you want cash flow or appreciation? Do you need the cash flow now or can it wait?  This will help you decide on where and what you buy.

Once your goals are established AND you have a market decided on already, either a realtor or property manager (if you don't want to manage) would be my next step.  I put the property manager higher on my priority list because they are going to be managing the property and you want to find one that 1) will manage the property and 2) you absolutely trust as they are your eyes and ears. A property manager can make or break your investment if not managed correctly.

If you find a great deal, you will find financing for it, whether through hard money, private money, or partnerships (investors). If you want to go through traditional bank financing, then you'll want to work with the bank first to find out how much they are willing to loan to you.

I am not an CPA or attorney, but from an investors standpoint, you do not need an LLC to invest in real estate. An LLC is a pass through entity so the revenue and profit will pass through from the LLC to your personal tax returns. It does provide some liability protection, however. Something I would do is open a separate bank account and credit card for the real estate investment and keep those transactions separate.  This will make life easier for you and the accountant come tax time and avoid mixing business and personal funds together, which can be bad should you get sued by a tenant. An LLC could be used once you get more experience and/or more properties under your belt. However, definitely consult an attorney and CPA for proper advice.

Good luck!

Kanwar Sodhi · Answer

@Cindy Craft Great work starting. In any which way, whether you're buying to get sweat equity or turnkey, the 30 year money gains will show you that you'll make tons of money.

Putting 20% down in a good area in 15 or 30 years gets you an 100% free and clear property with rent along the way (numbers have to make sense for you).

Anyway you cut the slice, you'll win

Cindy Craft · Answer

@Greg Bond I appreciate your feedback, it was very helpful. I am a little nervous about the Turnkey option just because I am not sure how to find out how reputable they are. Also, how would I go about finding a turnkey company to discuss the possibility of a deal with? Because I am so new to this, my real estate network is pretty small.

At this point, we are leaning towards doing most of the work ourselves. I am looking for a rental that is in livable conditions, that might just need a boost with some minor or more cosmetic changes that happen over time. We do have a decent amount of cash put aside in savings that we could put towards new flooring and/or some other fixes in a rental, we each have a retirement fund, and we do not touch the income that our first rental has produced unless it is something specifically needed for that property, so that is building up slowly, but nicely.

Greg Bond · Answer

Hey Cindy!

Awesome that you're taking the jump on the second rental!

Are you looking to invest passively or actively? (meaning do you want to do any work yourself or just provide the cash?)

If passively, you could turn to turnkey companies that will sell you a house with a tenant already in it! But be careful and make sure you go with a good company that manages the houses they sell.

If you're okay with fixing yourself, start going to REI meetups and networking with wholesalers. This way you can buy properties at a discount and refi them once they have a tenant in them :)

Cindy Craft · Answer

Thank you all so much! Every one of you has given invaluable advice and I will consider all when we officially begin the process.

@Michael Plante, yes, I do have a terrible habit of overthinking/over complicating things sometimes. I get really excited and sometimes I have so many ideas running through my head I need an outside perspective to help organize them :) Thank you, the list was very helpful!

Marc Lapointe · Answer

@Marc Lapointe refi

Marc Lapointe · Answer

@Greg Bond

You can refill after 6 months of seasoning

Buying a new rental property, what step is first?

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