Questions newbies ask about buying rental property

Brandon Turner just posted a great article on a basic outline for how to buy a rental property on the Bigger Pockets blog.

This is great as a basic outline, but I can imagine the types of questions newbies are thinking because real estate investing is a complex topic when you dig down deep into it. Doing your first deal is the hardest deal you will probably ever do (psychologically more than anything).

1. Get Pre-Approved

What lender do I work with? Is it better to work with a credit union, a local bank, or a national big bank? Should I get multiple quotes from multiple lenders or just go with one? How do I calculate my DTI ratio? What *is* a DTI ratio? If I have credit card debt, should I pay that off before trying to get pre-approved? What does my credit score have to be?

2. Work with a Real Estate Agent

Do I work with multiple agents or just one? How do I find one that is investor-friendly if other people I know have only worked with first time homebuyers? Once I start working with a real estate agent, how do I know they are really working for me? What if I don't like the agent (they are not producing results) and I want to stop working with them?

3. Define What You're Looking For

How do I know what I should be looking for? I'm pre-approved for an amount such that I could buy a duplex or maybe two single family homes? Is a duplex better to invest in than a single family home? What about multi-families; should a new investor start looking at those right out of the gate? Should I be looking at foreclosures, HUD homes, retail sales, and/or REOs? How much rehab should I expect when I find a property -- should a newbie take on rehab for their first investment or should one buy something ready to move in? What about turn-key properties?

4. Start Looking

Should I be compiling a list of properties to look at, or will the real estate agent be doing that for me? How much online research should I do before visiting the property in person? What types of things should I be looking up online before setting foot in the property? How do I know I'm looking in the right neighborhoods? Once I'm in the property, what are the major items I should be looking at? How do I know that this property is "the one"?

5. Do the Math

What's the "50% rule"? What's the "2% rule"? What's the "70% rule"? What are all the elements I need to take into account when "doing the math" besides principal and interest, taxes, and insurance? How do I know what's an acceptable cash flow number for an investment like the one I'm considering?

6. Make an Offer

Brandon advised not once but twice not to overpay. How do I know I'm not making an offer too high or too low (to risk insulting the seller)? Is it okay to make really low offers? What type of contingencies should I put into offers I make? What makes up a really strong offer? What is an earnest money deposit and how much of an EMD should I put in my offer?

7. Do your Due Diligence

Okay, I need to hire a home inspector -- how do I find a good one? How do I know the home inspector is "good"? How much does a home inspection cost? Can I watch the home inspector while they're doing their job to learn from them? What output should I expect from a home inspector? If I'm buying an REO that's been winterized, can the property be de-winterized for the inspection? If the home inspector does find some issues, in what situations will the seller fix them and in what situations will they not fix them? If the repairs are really bad, what type of information can I learn so that I can do my own "home inspection" for the next property to save myself some time and money?

8. Close on the Property

How much time between offer and closing should I expect? What types of things delay closing? Are there any penalties for a closing that is delayed? What do I need to bring to closing? Will I get keys at closing?

I just listed out some questions I can imagine newbies asking themselves once they read the article, and/or once they start down the road to buying an investment property. So if you are new to this, and some of the above questions ran through your mind, you're perfectly normal. Also, after reading the above, you might also be wondering the same questions.

If I wrote a response to all the questions above, this blog post would literally be more than eight times the length, and you would get bored reading it. So I'll end here, but continue on with answering the questions in future blog posts (or give links to more excellent content on the Bigger Pockets blog).