As more people reach out to me seeking advice about dipping their toes into the rental real estate investment waters, it occurs to me that most people don’t have their SH*T together enough to get started. They don’t have a plan, they don’t have their financial affairs organized, they don’t have their team assembled, they don’t know what kinds of properties they want–that’s right, they don’t have their poop in a group. And, while I am happy to help out, no amount of my advice is going to do you any good if you don’t get your crap figured out first.
By crap I mean your finances, your goals, your team and your strategy for real estate investing. Here’s a 12 step plan that will definitely help you get your SH*T together and get you moving in the right direction:
- Educate yourself. READ…read blogs (Biggerpockets.com is awesome BTW…I personally happen to love episode #195!), read books (one of my next articles will be all about the books I have read that have helped me get my own SH*T together and get started investing in real estate), talk to other investors, ask questions of others who are doing it today. Get SMART and figure out what kind of real estate investing gets you excited and can get you on the path to Financial Independence.
- Work on your network. Networking should be a process not a one-time event. Real estate investing is not a solo sport, so you will need a team that you can count on and you should begin building connections in the industry now. Reach out to others with the purpose of learning and helping. Find and attend a local Biggerpockets meet up, find real estate investor clubs, talk to realtors who specialize in investment real estate, etc.
- Clean up your personal finances. Do you have a budget? Do you know what your credit score is? Do you know how to fix your credit score if it needs it? Do you know where to start? Use my free editable Net Worth Worksheet that I created to track all my assets, liabilities and expenses and what I still use today to keep my finances in line.
- Line up your professional partners. Do you have an attorney, a banker, an accountant and a realtor who understands investors? Get them lined up now before you start making offers on properties. The attorney and accountant are important as they can help you set up your LLC correctly and the banker will be critical when you begin to make offers on properties. Sellers will give an advantage to pre-approved buyers over other buyers who are just kicking tires.
- Set up your LLC. Seems simple enough to do online these days, but having an attorney help you on the first one makes a lot of sense. They can navigate the waters and get you off on the right foot. Oh, and pick a name that people will remember.
- Check out some properties. You’ll want to get an idea what comparable properties are selling for/renting for/etc. Check Craigslist or Renter’s Warehouse if you are looking at buying rentals. You are looking to other properties similar to the kind you’ll be buying so you know how much others are renting theirs for. I don’t spend much time ‘driving for dollars’, as I have found that I don’t stay focused. I prefer the efficiency of looking online.
- Get your money ready! Do you have funds that are easily accessible in case you stumble on an offer that you can’t turn down? Do you have 20% or more ready to go? Get your financial pre-approvals all done. Is your banker ready for you to make some offers? Let’s go!
- Make some lowball offers. Start learning the art of negotiating by preparing some lowball offers. While most of these lowballs will never be accepted, be prepared to negotiate and potentially make good on these offers. If you make the offer, be ready for a desperate seller to accept and follow through. You don’t want to get a reputation for only making lowball offers. You want to buy and own. *In fact, another future article will be about why I offered more than asking price for one of my investments*
- Make some legit offers! Now that you have some experience making some lowball offers, make an offer or two on properties that you really have a vision for that fit the portfolio you are trying to build. You should have learned what kinds of offers are getting accepted based on your lowball offers. Get ready to make some serious offers that line up with your overall strategy.
- Do your due diligence. Due diligence just means to make sure you ask alot of questions to uncover potential pitfalls in the investment. What is the roof like? If it’s ready to be replaced, how much will that cost? Is that potential cost reflected in the offer? Are the carpets bad? If so and the price doesn’t reflect that you will need to replace them, negotiate the price down. Are the mechanicals (furnace/boiler/water heart/appliances/etc) of the property sound or are you going to be making an investment in these in the near future? If they are questionable, negotiate the price down based on this.
- Get to closing. You don’t want to niggle over every last detail with excessive back and forth negotiating. Be clear in your mind what you are willing to pay for this property and stay in that ballpark. Negotiate with a purpose and move forward. Too much back and for is just frustrating for you and the seller and the professionals you are working with. Remember, you want to get your hands on the property. You don’t make money until you own it.
- List it and get it rented. We love cozy.co (notice that isn’t .com…that goes to something different) as it’s simple to use, handles the background checks for us, makes it simple to collect rent and is easily linked to other social media sites so we can get the word out that we have a rental available. It’s great for the properties that aren’t in our backyard.
There you go! A 12 step plan to help you get your SH*T together and begin building YOUR rental real estate empire, whether it’s 1 or 1000 properties!