7 Easy Steps to Buying Income Property
7 Easy Steps to Buying Income Property
If you are new to the world of rental property investing, the prospect of actually purchasing a property can seem daunting. But it really doesn't have to be, all you need is a good action plan to make sure all the needed tasks get done. It is in this spirit that I present to you the following acquisition action plan:Step 1: Determine Strategy and Market1. Determine your goal, and how many investment properties you'll need to achieve it
2. Identify all the towns within a 30-minute drive from your home
3. Research each town by pulling demographic & other info from census.gov
4. Go to realtor.com and check out the multifamily listings within each town
5. Drive through each town to scope it out 6. Evaluate the combination of demographic info, number / price of the multifamily listings, and quality of each town, and select the best one to be your "home base" Step 2: Practice Conducting Analyses1. Go to realtor.com and search for income properties within your chosen target area
2. Call whichever real estate office has the most listings and ask to speak to that office's rental property guru
3. Ask the guru if you could be his/her client
4. Ask your new agent to send you all the active income property listings within the target area.
5. Practice running the numbers on each listing, and throw out the ones that do not make financial sense 6. Do drive-bys on the remaining prospects, and throw out the ones that turn you off
7. Have your agent schedule physical showings of your short list of properties
8. Rinse and repeat: keep doing this every week until you find a good deal, and do not get discouragedStep 3: Negotiate an Offer1. Determine your starting offer (+/- 20% below list price) based upon the results from your analysis and preliminary inspection
2. Get pre-approved for a mortgage, and deliver your pre-approval letter with your offer sheet
3. Indicate "as-is" on your offer (you will not be bound to this as long as it is not in the contract)
4. Engage in the back-and-forth negotiation process via your agent Step 4: Secure Rights to the Investment Property Via Contract 1. Have your agent (or attorney) craft the contract
2. Study & sign the contract
3. Write down a list of all contingencies and deadlines
4. Conduct due diligence (collect leases / utility bills / etc. from seller, verify zoning status with city, etc.)
5. Have your agent recommend, and make contact with, a title company
6. Get 3 homeowner's insurance quotes, select an issuer, and get insuranceStep 5: Coordinate the Inspection1. Schedule the inspection and physically attend
2. Determine next steps based on the results (i.e., is it so bad that you want to void the deal, or do you want to ask the seller to make the repairs?)
3. Present the inspection report to the seller along with your list of demandsStep 6: Get Financed1. Identify mortgage lenders: get referrals or checkout an online source such as bankrate.com.
2. Call and get quotes and GFEs ("Good Faith Estimates") from at least 3 different lenders
3. Carefully compare rates and closing costs, and select a lender
4. Identify and stay on top of lender requirements such as the appraisal, survey, certificate of occupancy permits if applicable, requested documentation, etc.
5. Secure funds for the down payment (don't forget about closing costs)Step 7: Manage the Settlement1. Work with the title company to schedule the closing
2. Make sure all contract contingencies and lender requirements have been satisfied
3. Call the title company a few days before closing to request a copy of the HUD-1 for review
4. Carefully review the HUD-1 and contact the title company if you see any errors
5. Do a final walkthrough the day of closing
6. Secure certified funds for the amount you owe
7. Sign the documents at the table
8. Request any outstanding items from the seller (leases, keys, contact numbers, security deposit info, appliance manuals, etc.)ConclusionBuying income property is easy if you have a step-by-step blueprint. Just follow the 7 easy steps presented in this article, and stick with it. It may take some time, but as long as you follow the plan outlined here, you are sure to find your ideal investment property in an effective and efficient manner.
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