Your Comprehensive Guide to Owning a Rental Property in Just 60 Days
I know many of you are saying, “This can’t be done! Are these people crazy?” Well, I am back this week to tell you that this can be done!
Want more articles like this?
Create an account today to get BiggerPocket's best blog articles delivered to your inboxSign up for free
And to be honest, I am a little crazy, too!
I'm super excited this week to share a step-by-step guide on how to buy your first "buy and hold" rental property in 60 days. I know this might sound ambitious, but rest assured I will walk you through all the steps so you can make this happen!
Let me share first why I put a time goal in this blog post. I am certainly not an expert in goal setting; however, I have learned over the years that adding a “by when” when you set out to accomplish something is powerful and necessary. The universe likes speed and momentum. Bill Copeland said it best: “The trouble with not having a goal is that you can spend your life running up and down the field and never score.” This can happen to a lot of new investors. They talk and talk about buying their first deal, but don’t pull the trigger. Don’t let this happen to you! I hope this blog post encourages you to “pull the trigger.”
About ten years ago, Matt and I bought our first buy and hold right outside of Philadelphia, which was a duplex. We do not own this property anymore, but it served us well for the few years we owned it. We learned a lot and then did a 1031 exchange and bought our first 4-unit, which we do still own today.
I want to share our background so you know where my perspective is coming from. Over the past 10 years, we have bought many different types of “buy and hold” deals, including single family homes, duplexes, quads and this year two of our biggest acquisitions: 10- and 18-unit apartment buildings. I think it would also be helpful to let you know that all of our units are in NJ except for the 18-unit apartment building, which is located in Philadelphia.
I am going to break this 10 step-by-step action guide into 3 phases: Preparation, Making Offers and Closing. I also put a time frame next to each of the phases. These are meant to be approximate time frames. Obviously, there are a lot of things out of your control when purchasing and closing on a property, so the 60-day time frame goal can change, but at least it is something to shoot for!
PHASE 1: PREPARATION—15 days
1. Become Clear on Your Motivation
I would encourage you before you even think about looking for deals that you take the time in this phase we call “preparation.” Most new investors will go straight to looking for deals without in my opinion being prepared and ready.
Related: Back to Basics on Buy and Hold
Find some quiet time and first write down your motivation and reasons for wanting to invest in real estate. Dig deep here if you can. If your reasons are not meaningful to you—really meaningful—you will not last long in this business. What habits are you willing to let go of? What habits are you willing to take on? I am a big believer of visualization and affirmations. What one or two positive affirmations can you say to yourself as you move through this process?
Bottom line—get clear on your motivation before you begin investing in real estate.
2. Take a Personal Inventory of the “Assets and Liabilities” You Bring to the Table
Most new investors do not realize that they bring a lot to the table of real estate investing even though they are new and less experienced. We each have talents/strengths and what I like to call “assets.” Our time is an asset. The 401K you have available or the free and clear home you can borrow against—both of these are assets. The skills, personality traits and business experience you have are also assets. The only caveat is that they are assets only if we use them to achieve our goals.
Bottom line—There are activities that you do exceptionally well. This will help you identify your “talent.” What is this for you and how can your assets help your real estate investing business?
Each of us also has “liabilities” (I will call them areas of challenge). Maybe you don’t have a lot of time, access to money or real estate experience. Let me assure you that you can transform any perceived limitation or liability you might have; however, you need to be aware of them first.
Many successful real estate investors do not like dealing with tenants, so they have partners who manage the tenant side of the business. Kudos to these investors that are fully aware of their strengths and weaknesses before getting a deal. I would also suggest that after you take this “personal inventory” you begin to think about the type of people you want/need on your team. You can’t do it all or know it all. Find team members and/or mentors who can complement you.
3. Get Financing in Place. Find the Money FIRST
I have heard a lot of investors say, "Find the deal, and then you can find the money." I would disagree with this approach. Deals can move extremely fast. If you don't have the money and financing in place first (before you find the deal), you can jeopardize losing the deal. You need to establish your money partners—this can include banks, hard money lenders, private money lenders, borrowing against your home and/or 401K.
Most banks we have been dealing with on buy and hold deals are giving us a 70 to 75% LTV (loan to value). Many of our smaller buy and hold deals have been using private money for the acquisition and renovation stages and then refinanced the property with a bank (once tenants are in the units). That way we can capitalize on the value we added to the property through the rehabilitation. Either way, you need to know where the money is FIRST.
4. Determine Your Target Area and Type of Property
Where do you want to invest? This is where doing thorough market research will help you. What type of area are you looking to invest in? What areas have job growth? This tends to be a good indicator of stability in rentals. My husband Matt and I have always invested in properties that are within a 30 mile radius of where we live. This works for us since we (our team) manages properties ourselves. Some investors end up buying property in different parts of the country and have been successful with this approach. Either way, determine where you want to be and do as much research as you can to vet out the area.
Also determine the type of property you want to invest in. You can invest in many different types of property, some of which include: single family homes, mobile homes, duplexes, triplexes, quads, apartment buildings, commercial and the list goes on and on. Determining your target area will help you determine the type of property that you want to invest in.
PHASE 2: MAKING OFFERS—15 days
5. Search for Potential Properties
We like to find buy and hold deals that need work since you can usually get a better price for them. There is a ton of ways to search for deals. There are conventional and non-conventional ways. We have used both. Many new investors are well aware that you can work with a realtor and the MLS. Just make sure you don't spend too much for the property, and make sure the seller is motivated! Also, make sure you work with a realtor who has experience working with investors.
One unconventional strategy we used to buy our first buy and hold duplex was calling For Rent ads. The strategy was to call these For Rent ads with the goal of finding motivated sellers. We wanted to find owners who were frustrated with having vacancy in their units and were tired of the rental game. It was an interesting strategy and was the reason we found our first duplex!
6. Narrow Search and Go See the Potential Deals
Once you find potential deals in your target area, you want to narrow your list and schedule showings. If you are looking at deals that will need work, I would highly recommend bringing someone who can help you assess the rehab cost. Also, take lots of pictures. Take pictures of everything: the good, bad and ugly. I would also suggest that you stack these showings. We find it helpful to schedule appointments back to back; that way you can compare and contrast the deals. It is imperative to take pictures so you can remember each property!
Bottom line—drive down the streets in the late evening, not just during the daytime! This will help you determine how you feel about the area.
7. Vet Out the Deal – Financially and Physically
Once you go to see the properties you had interest in, you want to vet the deal out.
Physically, you want to know how old the heating system is, whether the roof is in good condition and whether it has separate utilities, etc. In other words, you want to assess all the costs to maintain this property. You also want to assess the capital improvements that will be needed in the near future. Owners should have this detail.
You should review all of the up front and ongoing costs to maintain the building before you make an offer. When we began we did not put enough money in the budget for ongoing maintenance. You want to ask the owner about this expense. Also, inquire if they manage the building themselves or if they have someone else manage it. It is additionally helpful to know if they act as the maintenance person or pay a handyman to do the work. This can significantly change the budget.
Financial consideration is this the MOST important part of vetting out a deal. If you are off on the numbers, it can go from a good deal to a bad deal very quickly. I would recommend utilizing some type of software to analyze deals. I know BiggerPockets has one!
As you analyze the numbers, do not forget to account for changes in tenancy. Remember, your standards might be different from the previous owner’s standards. Is the rent current with the market? Many times the rent is NOT current with the market. If you are not comfortable analyzing and crunching the numbers, get a mentor who can help you or pay for the support. Either way, you don’t want to underestimate on your first deal!
8. Make an Offer
This is the fun part! This is where you make an offer or multiple offers. The key here is to make an offer that you are comfortable with and that will meet your goals. You can make an offer via agreement of sale (i.e. in writing), and then the negotiation will begin. Sometimes motivated buyers will accept your first offer; sometimes they will want to negotiate with you.
Either way, you want to be clear on what number you are willing to “not exceed.” Remember, don’t let emotions run the show—it is business, so don’t get too attached to the deal! If the seller shoots back a higher number that works for you, then move on. It was not meant to be! I love the saying, “The deal of the decade comes along once a week.”
PHASE 3: CLOSING—30 days
Please note, the closing phase is the phase that you have the LEAST control over. Therefore, sometimes this can take longer than you had anticipated.
9. Validate the Deal
Congrats—your offer has been accepted! This next step is where you validate the deal and where you do your "due diligence" before you go to closing. This is where you get the P/L (profit and loss statements), balance sheets, utility bills and property history and details from the current owner. This is also where your physical inspections are done if you plan on inspecting things like the roof, plumbing, electrical, mechanicals, etc. You also want to do some due diligence on the tenants. If you can, interview the tenants and review every lease agreement. This is an incredibly important step in this process. Again, if you are a newbie, lean on mentors and experienced investors to ensure what you are buying is a great deal.
Oh the joys on the road to closing! The closing process includes many moving parts, some of which include: financing, title work and legal work. Remember, if you take care of the financing up front (as I suggested earlier) then this will expedite closing. I have seen closing for some investors take much longer because they did not have their financing in place. For every property we have bought, we have always used a great real estate attorney. I remember when I got started I heard a speaker say, “You either pay now or pay later.” I would rather pay now and get the right advice and protection versus having issues down the road.
We’re republishing this article to help out our newer readers.
So there you have it—your step-by-step guide to buy your first buy and hold in 60 days. I would love to hear your success stories from implementing one or all of these steps!
Remember to tell us all about your experiences in the comments.