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Getting into the real estate game and learning how to buy your first rental property is exciting, and a little scary. Just remember it is the first crucial step in taking control of your financial future. It will create the first stream of passive income. That stream will cover part of your living expenses so that you don’t have to actively work for that money anymore.
As you continue to buy investment properties and build your portfolio, the amount of passive income increases. The goal is for all of your living expenses to eventually be covered by passive income so you are “financially free”. That is the point at which you no longer have to actively “work” for income. Instead, you can use your passive rental income to support your family, put your kids through college and secure your retirement.
Plus, investment properties are “hard assets” that you own and control 100%. By contrast, “paper assets” can mysteriously vaporize overnight in a corporate scandal or be stolen by a crooked money manager. Investing in real estate puts your financial future in your hands and under your control.
Since you’re ready to get in the game, let’s talk about the logistics of how to buy investment property for the first time.how to buy your first rental property
Identify the amount of investable cash you can allocate to buy your first rental property. You need to begin developing your investment criteria and “price point”, which will be based on the amount of your investable cash.
This is an important decision to make early on so you know what you can buy with your investable cash. If you qualify for financing, you may be able to purchase 2, 3 or even 4 properties instead of just one for cash. Buying your first investment properties with financing provides a substantial amount of leverage and can be especially compelling at low interest rates. If you are interested in financing your purchase, Maverick has relationships with preferred lenders who specialize in working with real estate investors. We can help you pre-qualify with a lender at no cost so that you understand exactly what rates and terms are available to you.
Removing geographic restrictions and understanding how to identify the best real estate markets regardless of where you live is a crucial step. Maverick has identified what some of the most "investor-advantaged" markets. However, each has different advantages, which we can discuss with you. Together we can determine which are most appealing to you and the best fit for your personal investment property criteria. Those markets are also at different points in the ever-moving "property cycle". So, an investor-advantaged market 5 years ago may not still be quite so advantageous today. We can help you get the latest market updates and make the most informed decisions each time you buy investment properties.
Maverick provides you access to private buying opportunities for off-market rental properties that are not available to the public. Our local market specialists in each city are able to present you with premium investment-grade properties in hand-selected neighborhoods. These areas are the most favorable for real estate investors (we call them the "real estate investor sweet spots"). Once you select your property, you just submit a signed reservation form through the Maverick website. At that point we will put the seller (the company that bought and renovated the house) directly in touch with you to answer your final questions and prepare your sales contract.
Upon receiving your reservation form, the seller will issue a sales contract to you as well as wiring instructions on how to send your earnest money deposit to escrow. “Earnest money” is a good faith deposit to show that you are serious so the seller is comfortable taking the property off the market while you conduct your due diligence on the property. Remember that Maverick is not representing you in the transaction, nor are we representing the seller. So, you are encouraged to have your legal/tax/financial/other advisors review the contract before signing it. Also, remember that Maverick does not handle any of your money. You send 100% of your earnest money to an escrow account (usually at the title company). There it will be held until closing and then applied to your down payment.
Now that you have the property under contract, it is time for you to conduct your due diligence. Whether you are buying your first investment property or your thirty-first, always remember that you are 100% responsible for conducting your own due diligence. You can consult all of your tax, legal and financial advisors. You can also get an independent home inspection, appraisal, and verify the market rents. Maverick can provide you resources (such as a list of home inspectors) but it is important that you (not the seller or anyone else) hire the home inspector so they work for you and have your interest at heart.
The home inspector's job is to alert you to any safety hazards, anything that is not up to code, as well as any major items that are on their last legs. Once you have this information, you can negotiate a "punch list" for the seller to complete before closing. This helps you reduce your “deferred maintenance” and ensure you won't have to make any major capital improvements soon after closing. You are welcome to make a trip to the market during your due diligence period if you like. You can meet the local team in person and walk through your property. The majority of our clients choose not to see their properties before they close, but some like to make the trip. You are welcome to do whatever makes you most comfortable.
Our clients want to be real estate investors, not landlords, and that requires hiring a professional property management company (and factoring that expense into your monthly cash flow analysis). Properties available through Maverick are "turnkey", which means that they will have a preferred property management company available for you. That preferred property manager is often affiliated with or owned by the seller. (That also gives them an extra incentive to ensure your property performs well so you will continue to buy more investment properties).
However, you are allowed to use any property management company you choose (or self-manage). You are never required to use a particular property management company and we are happy to provide you with a list of other property managers in the area. You are welcome to interview them to see which one is the best fit for you. Before you sign with anyone, we encourage you to read the agreement thoroughly. Ask any questions you have to the Property Manager and be sure you understand everything in the agreement.
Once you have completed all your due diligence and have decided to move forward, the Title Company will send you all the closing documents (including the lending documents if you are financing the purchase). You can sign these documents in front of a mobile notary who can meet you at your house or your office or your local coffee shop. You will wire the remaining money due on the property when you sign the closing documents, then the deal will close and you will be the proud owner of your first investment property. Congratulations!
Now you know how to buy investment properties and you are officially a real estate investor! Most property management companies will have an online portal so you can monitor your properties online 24/7. You can contact the property manager if have a question or if a situation arises that requires you to make a decision. Otherwise, you can just relax and have your monthly rent deposited directly into your account.
Now share what you just did with people you care about! Tell them all about your real estate investments and teach them how to buy investment properties just like you. The Maverick community grows primarily by referrals, and we would love to support your friends and family in meeting their real estate investing goals as well.
Then… start thinking about your next move. Plan out how frequently you can continue buying investment properties and building your portfolio of cash-flowing real estate until you are financially free!
Maverick can help you design your own personal real estate investing plan, answer your questions about the buying process, and walk your though the whole thing at no charge. Register for your free, one-on-one video consultation with Maverick.
We are not legal, tax, or financial professionals. The content on this page is for informational purposes only and should not be construed as individualized advice. It is your duty to consult with your own tax, legal and financial professionals about your individual situation, applicable laws, and the suitability of any investment property for you personally. All real estate investing involves risks, which buyer assumes, and no specific returns can ever be guaranteed by anyone.
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