How to Buy Your First Rental Property in 9 Steps

I was taking care of a patient last month. He was overweight, a smoker, drank too much alcohol. He came into the ER with a complaint of chest pain. He was worried it was a heart attack. Luckily, he wasn’t having a heart attack. He was having a teachable moment.

Teachable moments are vanishingly rare, maybe occurring once every few years. These aren’t teaching moments, I subject patients to those all the time. Most don’t change. The times they do, are when they have something life-changing happen, and for just a moment they become teachable.

Sure, you vaguely know that you need to start investing. You know that investing is the best way to secure your financial future later in life. But, that doesn’t help you right now. It makes right now even harder because that investment money could be spent on the shiny new car, bringing you untold happiness right now. You’ve read books on investing and you know where you want to be, but there is just one more hurdle. You have been told what to do, but were you teachable?

My patient was so worried he wouldn’t be there for his family that he was willing to truly hear about how his lifestyle was the primary contributing factor. He listened. You don’t have to wait for a teachable moment, with the right teaching. Now is your time. Make your move.

Part of it means realizing that you can become an investor. Mostly, it means taking that first step. Let’s talk about the steps you need to do to get that first property. Worry about getting bigger later.

What I’ve put together is a no-hassle list of steps. When you get more experience, you’ll modify this to become more efficient. This is the easiest way to get going NOW.

Step 1: Build Your Team

The first thing to do is to find a real estate agent. Find someone who has experience with investors, and perhaps invests herself. Your agent can help you decide what property types and locations are good to get started in. Once you have made this decision, she can be sending you deals regularly.

If you own a home, chances are that you already have a banker. Using the same bank for your personal finances makes it easy to expand into a business account and get a loan on your investment property.

Find an accountant experienced in real estate and an attorney for help with documents. Finally, find an insurance broker for commercial properties.

Get all of these team members lined up and understanding what you want to do and they will be a huge help to get you started. All for free!

Step 2: Network and Learn

I put this as step 2 because if it were step 1 many would get stuck here. Networking is very important but it is too easy to stop and spend all your time learning and going to meetings, never feeling ready. You are ready. Once you have your team and those deals are coming, it becomes real.

Join your local multifamily association. These guys have a ton of experience and knowledge and are happy to give it to members. This has a small annual cost. Give up that daily Starbucks and go to every day and you are set. Go to every local meetup and show them your potential deals. For reading, you can’t go wrong with The Millionaire Real Estate Investor.

Step 3: Evaluate Deals

Every one of those potential properties your agent sends you is a possible deal. Put together a spreadsheet at the minimum and evaluate each and every one. You should be doing at least 5 per day. At first you will have no idea which one is good and which one is terrible. Believe me, once you have evaluated 100 of these, you will be able to pick out the unusual one where the seller has undervalued the property and will be your ticket. Once you found one, run it by everybody on your team.

Step 4: Make Your Offer

The offer is the scariest part of the whole thing. Even more so than closing. There is a huge mental hurdle with the first one. Just like learning to drive your car. You were so excited to learn to drive and you wanted the independence it brings. Getting in and putting it in gear was so difficult and made you so anxious. Driving 100 feet took what felt like an hour. Now, you don’t even think about putting it into gear. It just happens. That will happen with real estate too. Figure out a price (you did this when you evaluated) and make an offer. Click the link for more details.

Step 5: Activate the Bank

Once you have an accepted offer, contact your bank. The bank takes the most time for the closing so you want them started on their work right away. The bank will want an appraisal and will work with your agent to get this scheduled. Keep in touch with your banker on the status of the loan. Make sure that you know the funds that are required at closing and that the funds are in your bank and cleared. Cleared means that the funds are ready and guaranteed to exist by the bank. Closing won’t happen unless the funds can transfer. Double check this as closing comes up.

Step 6: Schedule the Inspection

This should start right after you tell your banker you have an accepted offer. Your agent can recommend an inspector. Read my article on the details and why you need to do this step. Once you have the results of the inspection your agent will help you to negotiate and repairs or credits on closing.

Step 7: Apply for Insurance

Make sure you have insurance going live on the date of closing. Do this right after you talk to your inspector. Your insurance broker will need some details about the house and sale and may want to inspect.

Step 8: Get Your Body to Closing

Now, for the easy part. Bring your smiling face, and possibly a cashier’s check (or the banker will bring this) to the closing. Sign your name about a hundred times.

Step 9: Bonus! Leave me a comment

Let me know when you close your deal. I can’t wait to hear from you.

Dr. Equity

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