How to buy your first investment property

Investing in real estate can be a very daunting experience especially if you have never done it before. While I am far from a real estate investing expert I have gotten over the fear of buying investment properties and actually bought and sold some over the last few years. It is very important that you get educated before buying any real estate. I took the time to educate myself through books, seminars and discussions with real estate professionals before I did anything. Once you have gotten some education you really need to act and buy something. There is no substitute for real world experience.

Instructions

Difficulty: Easy

Things You’ll Need:

• Rich Dad Poor Dad by Robert Kiyosaki
• Real Estate Riches by Dolf DeRoos
• A great local real estate agent
• A great local mortgage broker
• Property manager

1. Understand your end game. You need to know what you want to get out of investing in real estate. Are you looking to generate additional income? Are you looking to build up appreciation over time to pay for a childs college education? Are you looking for a quick flip? Whatever you do you need to make sure you don't overextend yourself and take on more than you can handle. Investing for cashflow purposes is usually the best and safest approach. Shoot to break even or make profit each month and not just bank on appreciation.
2. Pick an area to invest in. You have to narrow your search to a very specific area. Real estate is extremly local. Prices and comparative sales data can very different from neighborhood to neighborhood. It is best to pick an area that 1) you live near or 2) you know very well and can watch closely.
3. Understand the cycle. Real estate is very cyclical. Know where you are in the cycle. If prices have gone up for the last 5-7 years they are probably going to flatten out or decline soon. This does not mean you shouldn't buy it just means you need to know what your long term plan is so you can see if buying makes sense at that particular time.
4. Make a plan. You need to have a plan to be successful. Your plan should include things like; 1) price range, 2) property type - single family home, apartment unit or building, retail - 3) exit strategy - will you sell to make some money on the appriciation or will you hold long term.
5. Sticking with single family homes is a good safe bet when you are just starting out. Single family homes are easier to purchase, easier to get financed and easier to sell when you need to. There are a lot more buyers out there for single family homes than apartment buildings or other investment property. When choosing a single family home it is best to make sure you have a 3bd/2ba at a minimum. These are the easiest to rent out to young families or even sell to that same customer. Also investors like to by well priced 3bd/2ba homes for rentals.
6. Once you close on your new property you will need to get it rented. You can do this on your own or use a property manager. How you choose to manage your property depends on your individual needs. Do you live in the area where your property is? Do you have time to handle any issues that may come up on your own? Is the your time worth more than the money you would spend on a property manager? A property manager can sometimes be easily justified if you have multiple properties. If you only have one or two you may be able to do it yourself or find a handyman that can handle everything for you at a fraction of the cost.
7. When renting always try to get at least a six or twelve month lease. The longer the lease the less worry you will have turning over the property. I have found that most tennants will stay longer than their six or twelve month lease so don't be worried that they will just leave once their lease is up.

Tips & Warnings

• Be prepared, get pre-qualified for a loan before your start looking.
• Always look to refinance when you can. Many people don't use financing to to its full advantage.
• Be very careful choosing a loan. You need to have a trusted mortgage broker. There are a lot of bad loans out there.
• Never buy a piece of property site unseen unless you are a seasoned real estate investor.