At 22 I was fresh out of college with a bachelor’s degree, no real job, and a burning desire to invest in real estate. I came across an online real estate investing community called Bigger Pockets and was immediately captivated. I listened to their podcasts every day, and learned about how ordinary people gained financial freedom through real estate investing (REI). Incredibly intimidated by all the big dog real estate investors in my area, I was hesitant to make the first move. But, everyone has to start somewhere, right?! Now I am 23 and I just bought my first investment property for $83,000, with only $4,500 out of my pocket. Here are the steps that I took in preparation to purchase my first investment property:
“The secret of getting ahead is getting started”
-Mark Twain
1: MAKE GOALS
Buying my first property seemed like such a scary and daunting task. I knew that if I broke it down, and set some simple goals, the process wouldn’t seem so bad. My goals looked something like this:
Find a full-time job: (1: Because I needed a W-2… and 2: because it would help my chances of getting pre-approved for a home loan)
I landed a job with a real estate and property management company (SCORE!). I am a property manager on the property management side and an office manager for the real estate side doing administration work and marketing for our realtors. Making a full-time income while learning and exploring my passion is so rewarding!!
Raise credit score!
Before starting the pre-approval process, I was able to raise my credit score to 720. To do this, I paid off my credit card debt, refinanced a personal loan to lower my monthly payments & interest rate, and I continued to make all my payments on time.
SAVE $$$: Set aside $5,000-$9,000 for the down payment and closing costs. (This is just the set amount that I was comfortable with taking out of my savings for my first property)
I received my workers permit when I was 15 years old and I have had a job ever since (sometimes working 2-3 jobs at a time). I have been saving up my money for a while. Some ways I save money are keeping my expenses low, driving a crappy car that is paid off, and I don’t have any student loans (I’m in the National Guard which paid for all of my college tuition!)
Find a lender and get pre-approved
Through recommendations at work, I found a great lender and got pre-approved for a home loan within a few months! In my market, good deals go FAST!! I knew I had to have all my finances in order and have everything settled with my lender or else I would be SOL when it came time to putting in an offer. As soon as I was ready to make an offer, I could call up my lender and he would be able to provide a pre-approval letter the same day.
Find a rental property that is right for ME! (either single family, or multifamily)
Typically, for an investment property, you must put 20% down. I didn’t want to blow my savings and put 20% down right away, so I had to be creative. Instead, I used a conventional-owner occupied loan where I only had to put 3.5% down. With this loan, the property had to be my primary residence for one year. One option was to buy a multifamily home and live in one of the units for a year and rent out the other units. The other option was to buy a single-family home, live in the home for a year, then rent out the whole house. I found a gem of a property! It’s a single-family home, 3 bdr, 1 bath, new furnace with central air 2017, new roof 2016, built 1891, for a whopping $83,000. And on top of that, the property is right across from a large hospital (prime area for rentals).
Purchase first property by the end of 2018..(CRUSHED IT!!)
I started this whole process in December of 2017, and closed on the property in July of 2018!
2: CREATE YOUR TEAM
This is so important!! No matter how much studying and research you do, you need a killer team to back you up and walk you through every step of the process. Here’s what my team looked like:
REALTOR: I found the best realtor in the world (she also just so happens to be my mother). My realtor was local, she knew the market well, her communication style was similar to mine, and I felt comfortable with her (well, duh!). Although it was a no brainer to work with my mother, these are all the things that I would look for in a real estate agent.
LENDER: It’s okay to shop around! I talked to two different lenders and went with the one that gave me a better deal and the one that I felt most comfortable working with. With this being my first home, I didn’t want to feel nervous or hesitant asking stupid questions. Let me tell you, I asked a lot of stupid questions…
MENTORS: Working at a property management / real estate company, I was surrounded by experts. These experts own hundreds of properties in the area and they aren’t going to let me put an offer on a dud. Every day I learned something new from them and they tolerated all my annoying questions. Find a mentor and pick their brain as much as possible.
3: DON’T SPEND BEYOND YOUR MEANS
The house that I purchased was $90,000 less than what I was pre-approved for. I knew what I was comfortable spending on a mortgage every month, so I only searched for properties in my price range. For the first year, I would have to be comfortable making mortgage payments myself. When renting it out in the future, I had to ensure that I could cover costs if the unit becomes vacant for a few months out of the year.
4: SEARCH, ANALYZE, REPEAT
I searched for single family houses, duplexes, and triplexes for months! Once I found a property that caught my eye, I would analyze it to make sure that it would cash flow. There are so many factors to consider when analyzing a property, so I will save all that boring stuff for another blog post. I probably analyzed 30 properties and my mother and I went to see 5 properties, before putting an offer on my house!
WHAT’S NEXT??
I have had the property for almost a year now and I’m slowly making updates. It was a great deal, but it needed some TLC. I left room in my budget to make updates to the property while living in it. During the first year, I’m also renting it out on Airbnb to try and make some extra $$. After the first year, I will move out and begin renting it out to long term renters. I am hoping to rent it to individuals who work at the hospital right across the street. My mortgage payment each month is $611 which includes the mortgage, insurance, and taxes. I will be able to ask about $800-950 a month for rent (based off other rentals in the area). Keep an eye on my blog for before and after pictures of the investment property and other updates! **Fingers Crossed**