Thinking about getting involved with rental properties?
Looking forward to the wealth and passive income that can rental properties can bring?
Well, hold on one second.
Let me tell you two stories of a couple friends of mine:
The first bought a new car when he was 21. Then he bought a nice house. Then another car. Then some really cool “guy toys.” His life was awesome. He had a job that paid him well, and he used his money to live a pretty cool life while he wasn’t working.
The second friend bought a rental house instead of a new car when he was 21. Then bought a duplex. Then bought some more rentals. And it was hard work. He made some mistakes. Didn’t drive a fancy car. Didn’t make much money—at first. But over the next several years, he continued buying rental properties and soon, he was able to quit his job at just 27 years old. His rental properties gave enough money each month to pay his bills. So rather than working 40 or 50 hours a week making someone else rich, he was able to use his new free time to make himself—and those around him—wealthier.
Now he has the new car, the nice house, and the toys—but those things are paid by the nearly 100 rental property units that he owns. He now spends his time buying more real estate because he likes to, travels around the world regularly, and spends an amazing amount of time hanging with his wife and daughter. Oh, and he also writes books like The Book on Rental Property Investing and writes blog posts.
Yes, the second story is about me, Brandon Turner, co-host of the BiggerPockets Podcast and author of The Book on Rental Property Investing—and the first story, well, that’s about almost every friend I ever had.
Now, there is nothing wrong with the first story. But for me, I wanted something different than that script. Most of those friends are still working that same job, working so many hours they don’t have time enjoy the toys and travel and family life.
So, the fact that you are reading this tells me you are probably more like me than many of my friends. You want something different—you want the kind of financial freedom that real estate can give you.
Awesome, so let’s help you get there. I’m going to use this video to give you the basics, the foundation, for rental property success and I’m going to do so in an 8-step process.
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There are a ton of different types of rental properties out there: single family homes, small multifamilies, large multifamilies, commercial properties, vacation rentals, and so on. So it’s good to narrow that down and pick one type of property you plan to start with. You don’t need to be stuck with that property type forever, but by focusing your mind toward one type, you can dig in deeper and read books, listen to podcasts, and chat with other investors who are doing the same kind of thing.
Step #2: Choose Your Market
You don’t have to invest in your own backyard, but when you are first starting out, it definitely makes it a bit easier. Invest where the numbers make sense with the plan you have. If you are looking to buy rentals but you live in downtown San Fransisco, you might need to consider a market farther away.
Then, once you’ve defined your market, it’s time to do your homework and seek to understand as much as possible about that market. Where do people like to live? Where are property prices higher? Lower? What about rents? What about crime? Talking with local real estate agents, lenders, property managers, and other local investors can help you in a tremendous way.
And that leads to step #3…
Step #3: Build Your Team
Now, when I say “team,” I’m not talking about some high school jock squad—I’m talking about the professionals you can rely on to help you with your investments. Specifically, I’ll call attention to what my friend David Greene, author of Long Distance Real Estate Investing, calls “The Core Four.” Those four people are your real estate agent, who can help you find deals and understand the market; your lender, who can make sure you get the best financing possible; your property manager, who can advise on neighborhoods, rental rates, and property conditions; and your contractor, if you plan to buy something that needs some work, which most of the best deals do.
So what’s the best way to find this core four? One word: Recommendations. Find some other real estate investors over on BiggerPockets.com—there are over 1,000,000 there—and reach out. Build relationships. And ask for recommendations.
Whether it’s from your real estate agent, which is the easiest way to start getting leads, or maybe you do something a bit more advanced like direct mail Marketing or driving for dollars, you’ve got to get leads coming in. And what do you do with those leads?
Thanks for asking. That takes us to step #6…
Step #6: Start Analyzing Deals
I want you to remember three simple words: Math overcomes fear. The more comfortable you are with running the numbers, the more confident you’ll be pursuing deals. And here’s the great thing about real estate: Every property has a number that makes it a good deal. Your job is simply analyze deals and find the numbers that work for you and your plan. If your goal is $200 in cash flow each month, then figure out how much you can pay for the property in order to make that amount. It’s really that simple. You might have to look at a lot of deals, but real estate is a numbers’ game, so keep at it. And for the easiest, fastest, most complete way to do that math, check out the BiggerPockets Real Estate Investment Calculators at BiggerPockets.com/calc.
OK, so once you have that number and you know how you’ll finance it, it’s time to go after that deal. Which brings us to step #7:
Make your offer, including how much you want to pay, when you want to close, what kind of financing you plan on using, what kind of inspection period you want, and so on. Your real estate agent can help with all of this. One trick I use often in my own investing is I like to give sellers a couple different options, like, “Two-hundred thousand dollars as is—or $220,000 if you include all the furniture.” Now, I don’t necessarily want the furniture or whatever else I ask for, but when you give multiple price options, people tend to choose between the options rather than thinking “yes” or “no.” Then, you’ll negotiate with the seller back and forth until either you can’t come to an agreement and you start looking for other deals OR you get to mutual acceptance of the contract and you move onto step #8.
Step #8: Close and Manage
You’ll likely use a title company to do all the paperwork and details, but you’ll probably want to hire an inspector to check out the property’s bones. After signing papers and getting the keys, you’ll be the brand new owner of your own personal ATM machine—but that ATM machine is going to turn into a bottomless pit of woe unless you manage effectively. Landlording is a skill anyone can learn—and in fact my wife and I wrote 100,000 word book on just that topic because all the tips and tricks for managing tenants don’t always come naturally. That said, don’t think you need to necessarily manage yourself. If you hire a great property manager, then it’s their job to deal with the tenants, but remember, it’s still your responsibility to watch over the manager and make sure they are doing a great job.
Financial freedom through rental properties IS entirely possible and you CAN do it. So get out there today and start building your real estate empire.
Where are you in this 8-step process?
Let us know below!
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