Many times people thinking about buying their first investment property are anxious or scared. So how do you overcome the fear factor?
I guarantee there are many people out there who put down on their resolutions and goals for 2015 that they want to buy their first investment property.
You do not need to be scared. But you need to take that first step to get over the fear factor. Here are the three steps: Finding the property. Funding it. Cash flowing it.
Finding the property at 70 percent
One overarching piece of advice is buy a property at 70 percent of its market value.
That’s easy to say, but difficult to do. How in the world do you buy a property at 70 percent of the market value? Who would sell a property at 70 percent of the market value?
You would be surprised.
Those properties are out there today. And there are individuals buying those properties in that manner today.Let’s talk about what you need to do to go find your property at 70 percent market value.
You can find it, or even better, have someone else find it for you.
A quick disclaimer: When I say 70 percent of market value what I am saying is that you are going to find a property you can purchase and repair and those investments would equal 70 percent of the market value of that house.
For instance, you go out and find a house you can purchase for $50,000, put $20,000 in it, for a total investment of $70,000 and sell that property for $100,000. That is an example of what I mean when I say buy at 70 percent of market value. The cost of the purchase, plus of the cost of repairs, equals 70 percent of what you can ultimately sell it for.
And where do you find the property?
You can go online and look for wholesale deals. There are plenty of people marketing wholesale deals on the Internet.
A wholesale property is marketed with the idea of an investor purchasing it and ultimately investing in it and reselling it or renting it. Anytime you see a wholesale deal that should piquek your interest. And those are available all over the Internet.
Just search for wholesale deals, wholesale sellers, wholesale properties and you will find a myriad of websites in your area or in your neighborhood.
You can drive around your target neighborhoods, figure out where you want to buy a house, and then go look for “For Sale by Owner” signs. These are typically properties that need work or need repairs. Maybe they are not suitable to sell on the traditional retail market with a Realtor or listed on the MLS for some reason.
Those people often are often desperate just to get someone to come in and make an offer on their property. Go knock on their door. Give them a call. Those are opportunities sitting right in front of you and that sign in the yard “For Sale by Owner” is a good indicator that that may be the house for you, and your investment.
Finally, there are properties for sale today on the MLS that fit this criteria. There are not many of them. But they are out there.
Ask a friend or family member who is a Realtor to set up an auto search that emails you each morning when a property hits the market that may fit your criteria.
You can have them set up a search based on the area and how much you want to spend. Also have them key the search off certain words in the property description as if it says,”TLC, hey that’s a property you want to know about.” It’s probably described as needing some tender loving care, maybe you want to search off the word handyman because properties are marketed as handyman special.
These could very well be great investment properties. Maybe you want to find properties that in the MLS description say “investors only” or “cash.” These are all key words your Realtor can set up an easy search and they can fill your inbox with properties that may fit in what you are looking for in your “70 percent of market value criteria.”
Seeing the property in person
This is critical.
Just because you think you bought something at what you think is 70 percent of market value, you have to look closely to be sure.
When you are buying it, you are estimating what you think it’s going to cost to repair it. And you may think like in our earlier example, you are buying it for $50,000 and putting $20,000 in it , and selling it for $100,00.
You better go see that property up front and maybe get a professional opinion because you need to make sure that $20,000 investment in repairs is true. If you purchase the property and end up investing $30,000 in repairs you can see mathematically right away how it could go in the wrong direction and not be as profitable, or profitable at all, as an investment.
See the property. Engage professional contractors. Get professional opinions and validate your assumptions.
Fund it after you find it
Let’s say you have found the property, done your investigation of all the costs involved, and it fits the 70 percent purchase rule. Now, you have to go get the money to buy it. And you’ve got to move quickly because someone else is going to want that property also.
If you have done your homework and investigation, what lawyers call “due diligence,” it is going to be very easy to find a lender. When they see what you are buying it for, and ultimately what it is worth, you can go to a local community bank, a family member who may have dollars he is interested in investing, a hard money lender, or others.
If you are purchasing a property based on the way we are describing following the 70 percent rule, and have done all your investigation and done it correctly, you will be able to demonstrate that to any lending source and they will be more than willing to lend you those funds to purchase that property because they will be confident in the return and the quality of the investment.
Cash flow it
Stay steadfast to your 70 percent rule.
That is going to guarantee once you find the property you are going to be able to fund the property and ultimately be able to cash flow it. Whether you choose to fix and flip it, wholesale it to another investor or fix it and rent it. If you have found the right property and used the 70 percent rule, you will be able to succeed at any of those three exit strategies.
I caution you, there are risks involved.
It’s not always as easy as you see on the weekend shows on TV. Be careful. Do your due diligence. Be intelligent. Follow the steps. And be rigorous, and you will find you will be successful on that first property and enjoy the wealth you have begun to accumulate in your first venture as a real estate investor.