how to buy a rental property this year: Take these steps immediately
If you want to buy a rental property this year you must be willing to take action. Here are some actionable steps that you can take in order to purchase your first rental asap!
Nothing, literally nothing, you read above matters if you fail to take action. I’m not going to run around screaming at you to take massive action and to take action immediately. I am, however, going to show you some actionable steps you can take to move you closer and closer to pulling the trigger on an investment property.
Again, none of this will matter if you fail to take action, so pay attention and then go knock these out!
1. Choose a Market
I could dig into the millions of different ways to analyze a market, but the bottom line is that you need to choose something with which you’re comfortable.
2. Build Your Team
You read the section above about who needs to be in your team and why…now go build those relationships!
3. Look for Deals
A. Multiple Listing Service (MLS)
I recommend you do some research and find a solid real estate agent. Have this agent set up an automatic MLS search to find a property that meets your criteria. Once set up, this system will automatically email properties to you as they come on the market.
Admittedly the MLS will not generally have the best deals, but it is easy to use and a great place to start! I have found some great investment properties this way!
B. Driving for Dollars
Driving for dollars is another tactic to find deals, and it can easily fit into your schedule. The easiest way to do this is to take different routes to/from work on your commute.
The goal of driving for dollars is to learn the neighborhoods. In this way, you can become familiar with which areas are growing and which are falling apart. You want to keep your eyes peeled for the ugliest houses in nice/growing neighborhoods!
Takedown the address of any house that has some promise, and then you can send them a letter to mention your interest in the property!
C. Direct Mail
Direct mail is the process of sending letters to property owners and asking if they are interested in selling. This is a great method to reach a lot of people with minimal effort. I purchase my lists from Listsource because there is no limit to how specific you want to make the list!
It takes more time, but handwriting these letters will have a much better response rate: roughly 18.75% vs. 7% in my experience. My rule of thumb is to handwrite letters if I’m targeting specific houses, but for larger mail-outs, I print to save time.
Whether you handwrite or print, always do these three things to improve the response rate!
-Sign the letter. This will show you still handled all of the letters.
–ALWAYS hand-address the “To” address on the envelope. This will increase the number of letters that get opened!
-Insert a photo and/or business card into the envelope. This builds credibility and pulls the recipients’ heartstrings.
D. Networking (Referral)
Referrals are a great way to get the best real estate investments. The key to referrals is to ensure that you build your network. As you meet more investors, you will be introduced to wholesalers, flippers, buy-and-hold investors, agents, and a myriad of other people.
Putting your feelers out there for real estate and building a community full of people doing the same thing will have very positive effects. I have found that the real estate investment community is full of helpful people, and deals are always getting offered back and forth based on criteria and availability!
There are even ways to build your network virtually when you can’t be there in person!
E. Talking about what you’re looking for!
Everybody needs to know that you’re in the real estate investing business. You want to be the first person that pops into someone’s mind when they hear that somebody has a home to sell. Don’t be afraid to talk about your “hobby” of investing in real estate with everyone you encounter. Tell everybody you meet about your goal to buy a rental property this year!
F. Bandit Signs
Have you ever seen one of those yellow signs around town that say “We buy houses” or “Sell your house fast”?
These are called “bandit signs” because a lot of cities have passed ordinances to ban them. I have not used bandit signs in the past, but I’ve known several investors that have had luck with them! The key is to keep the message short and LOUD!
G. Facebook Ads/Google AdWords
The marketing and advertising world has changed so much in the last decade. These changes have made it possible to write Facebook ads that directly target your specific city or zip code. Instead of a bandit sign, you could write a Facebook ad saying, “We want to buy your house in Springfield, MO,” and blast it to every Facebook user in that area. This might cost a little bit more, but it is an effective method to reach people.
Google AdWords allows you to research what words/phrases are commonly searched for on the Internet. As a result, you can write an advertisement that will show up on the keywords that best meet your needs. Google is used for a lot of online searches, and there aren’t many better ways to get in front of your niche than keyword advertisements.
1. Get Pot-Committed
Buying your first real estate investment can be a little intimidating. You need to take little steps to get more and more pot-committed in order to pull you towards your goal.
This is one of the reasons being in a mastermind group is so powerful. The people in your group will challenge you to outline your most important next step and then hold you accountable for doing it.
The members of our War Room Real Estate Mastermind group have achieved massive success this year, and that is just one of the reasons!
2. Write Offers
You need to analyze enough deals that you begin to understand what makes a good deal and what makes an okay or bad deal. Once you understand this, you need to start writing offers. You can’t buy a rental property this year without writing offers!
The old adage is that no more than one or two out of every ten offers you write should get accepted. If more than this is accepted, you are most likely offering too much money.
That being said, find some deals that make sense and write some offers. This will get you committed to taking the next steps and digging into the due diligence on a property. Remember, writing an offer doesn’t mean you’re trapped in the deal. If you find something during the due diligence period that doesn’t add up, you can renegotiate or break the contract.
Think of this like asking friends to run a marathon with you in three months. The majority of them will say no. But if somebody says yes, you are now committed to training and making it happen. If you get injured or your friend bails, you won’t have to run the marathon, but if all goes well you will achieve your goal!
The moment you have a property under contract, reach out to the lender(s) you built relationships with earlier and get the financing process started. In a perfect world, you should already be pre-approved for a loan. Regardless, pick up the phone, reach out to your lender(s), and get the ball moving to get your financing approved to purchase this property.
Also, ensure that your lender schedules the appraisal for the property as soon as possible.
4. Due Diligence
Get with your realtor immediately and schedule a home inspection. This is the most important piece for conducting your due diligence. You also need to validate utility-reports for the last year, property tax data, trash expenses, leases, and any other services associated with the property. You want to buy a good rental property this year, not a bad one, haha.
Have your insurance agent give you quotes for homeowners insurance, and definitely don’t be afraid to shop around. I used USAA for years, but at the time they didn’t insure commercial properties. I got several quotes and finally settled on State Farm for my 10-unit. Out of curiosity, I asked them to give me a quote for my other properties too, and it ended up being cheaper for me to move all of my real estate to the new insurance agent.
If possible, you should have your property manager walk through with the home inspector. This gives them insight into exactly what needs to be repaired, and the inspector may even give them some pointers for cheap fixes. This is also a good time for your property manager to get a copy of every lease or pass out estoppel agreements to validate rental terms for all tenants.
Whether your property manager walks through with the inspector or not, you will want them to review the leases for every current tenant.
5. Improve Operations
Put an emphasis on slashing expenses the moment you take ownership of the property. If you can save $100/month by switching to a dumpster instead of individual cans, that is a huge win. Cutting $100/month from your expenses is money that you get to keep EVEN if the unit is vacant. When you increase the rent by $100/month, that is great, but you don’t get any benefit from that when the unit is vacant.
You should improve your income and cut your expenses simultaneously as fast as possible after closing on the property. Just don’t fall into the trap of getting so wrapped up around income that you forget to focus on your expenses.
You need to upgrade to hack every possible repair. “Upgrade hack” is a phrase coined by David Greene in the book Long-Distance Real Estate Investing that explains a great trick for getting maximum value any time you need to replace items in your units.
For example, if your furnace goes out and it is going to cost $1800 to replace it, why not spend the extra $200-$300 for a high-efficiency model?
To upgrade hack this, you would buy a higher-end furnace instead of the lower quality one most people buy. Let’s say it costs you $200 more to have a high-efficiency, high-quality furnace installed. If that furnace only saves you $10/month in gas on your utility bill, it is an annual savings of $120. The high-efficiency furnace will pay for itself in 20 months, and most furnaces last at least 15-20 years! Assuming this furnace lasts 20 years, you would have saved $2200 in expenses by upgrade hacking. The best part is that a high-quality furnace could easily last you 5-10 years longer than the more affordable ones, which saves you even more money!
By the way, on average a high-efficiency furnace will save you 25%-30% of the costs you would be paying on a lower quality unit, which is way more than the conservative numbers above!
If you have time and knowledge but no money, find a partner with capital and work together. When you boil it all down, there are three things you need in order to be a successful real estate investor: time, knowledge, and money.
If you can form a partnership with somebody who complements the areas you’re lacking in, that will drastically improve your ability to scale and become a real estate investment powerhouse. That being said, don’t partner with just anybody. You need to know and trust your partner. Ensure you are on the same page and agree to terms for making decisions and dissolving the partnership before making things official. That way, if things don’t go as planned, you’ve made decisions about how to resolve it BEFORE emotions get in the way when things go south.
Congratulations on achieving your first big success! Now keep it up. Repeating these actions until you have mastered the real estate investing game is a trademark of successful people. Repetition helps you master a task, and you need to practice these skills continue to improve.
The book Outliers by Malcolm Gladwell talks about the 10,000-hour rule. This rule states that it takes 10,000 hours to become a master in any task. I’m a big fan of this book and the examples the author uses to validate his point. If you take nothing else away from this book, you should note that the more you practice, the better you’ll get!
1. One Percent Better
The Compound Effect by Darren Hardy explains how little steps toward improvement every day will compound into a massive success. You don’t have to make drastic changes to your life, just focus on improving a little bit every day.
Don’t ever stop improving. Just make small tweaks in order to consistently approve.
2. Most Important Next Step
The trick to supercharging your productivity is to identify the most important next step (MINS) to achieving your goal and then doing it. If your goal is to buy your first rental property, your MINS might be to find a realtor. In order to find a realtor, you may determine that your MINS is to ask three successful real estate investors for a referral. Now that you’ve gotten referrals, the next step may be to interview these agents and determine who the best fit is for you.
If you knock out your MINS first thing in the morning, no matter what happens that day you will have moved the needle forward. This is how you supercharge your success!
Now that you have a little momentum under you, don’t stop. Keep that momentum building and continue to find deals, write offers, and purchase solid real estate investments. In a few years, you’ll look at where you are and wonder, “How did I get here?” That answer looks a little different for everybody, but the answer, in my opinion, generally boils down to learning, networking, and taking action, repetitively and persistently.
4. Set Goals that Pull You Forward
In order to buy a rental property this year, you must set goals. This is not negotiable.
An example I like to use is how I have gotten myself into triathlons and other crazy physical activities. I would ask two to three people at work, “You want to run an Olympic-distance triathlon with me next month?” If they said no, then I may or may not do it. But if they said yes…if they said yes, I was stuck!
After a friend agrees to train and compete with you, there is no backing out now. The need to follow through and not let your friend down will pull you towards completing the goal of finishing an Olympic-distance triathlon.
You need to set goals that pull you forward and make it more painful to fail than it is to succeed. Dieting is no fun, which makes it easy to quit and go back to eating junk food. Perhaps you make the goal to stick to your diet competition with a friend or tell your accountability partner(s) that if you cheat your diet you’ll owe them $100. Find ways to motivate yourself to succeed, so that on days when you “don’t feel like it,” you will have a more compelling reason to push through and continue making progress.
The Bottom Line
Look, you know what you need to do to buy a rental property this year. You know how to find the way around any obstacles that come into your path. You even know where to find the answer to any question you don’t have the answer to (Google).
Now, you need to decide that you will buy a rental property this year, learn everything you can, network relentlessly, and take consistent, calculated action to achieve your goals. Don’t let yourself down!