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9 Steps To Start Investing In Real Estate 2020

9 Steps To Start Investing In Real Estate 2020

This blog post is really meant to be a real-estate beginner tutorial where I can really cover the basics, and outline the blueprints of exactly what's needed in order to become successful in real estate investment.

Just as some clarification. What I mean investing in real estate, I'm not talking about wholesaling, I'm not talking about flipping, I'm talking about actually owning a property as an investment where you then get a tenant in there who pays your mortgage down for you while hopefully still providing a little profit on top of that long term and then fifteen to thirty years from now, you will end up owning that home out rights, you will own it free and clear. You will start making a lot of rental income and with that, you can pretty much just chill and do whatever you want.

10 Steps To Start Investing In Real Estate

1. Build your credit score

Basically, you need a good credit score because lenders look at that anytime they determine what sort of loan they're going to give you and in what interest rate the higher the score, the lower the interest rate you pay and with that, the more money you get in your pocket every single month and when you have a bad credit score at lenders either look at you and say: you know what we're not even gonna let you because you don't have a good credit score.

So literally just not paying attention to this step and not bill your credit will cost you a lot of money over your lifetime, and this is one of these steps you can start immediately after reading this blog post.

2. Save your money

The reality is that you can't really invest in real estate with no money down, with no credit with salary finance it doesn't really exist, those are unicorn anomaly deals that I have never myself seen firsthand in the last ten years of me doing real estate, and probably 999 out of a thousand deals out there, you will need to put down anywhere between 5% and 20% of the purchase price have the income to actually get the loan and have the credit score. So this means that in order to actually save money, not only will you be required to live frugally so that you could save the money that you make, but you're gonna have to actually make money.

In terms of actually making money, that's really up to you to decide how you want to go about that, maybe you want to take the steady nine-to-five and get the guaranteed paycheck every other week just so you could be able to qualify for a loan, nothing wrong with that, or you can start your own business, and then try to make a little bit more money and speed up the process, the choice is really up to you as long as you actually make and can actually save money.
3. Show your income on a tax return

This means that you can't just go and have one phenomenal month on Shopify and then expect to use that income as a down payment and then invest in real estate just a few months later.

Lenders really want to see a consistent stable long-term source of income before they end up giving you a loan, this is to prevent people from getting a loan based off, maybe just a few phenomenal that are unlikely to happen again, or also to avoid high-risk borrowers that might not be able to make the payments after a few months and then default after the first year.

In order to do this, you're gonna be needing to show proof of income on the last one to two years of your tax returns, for me because I'm self-employed they look at my last two years of tax returns, they take the average of the income between those two years and based my loan on that.

For salaried employees oftentimes banks will look at the last one year of your tax returns, and often the last six months of your bank statements and then base your loan off of that, but it's really important to any time you're showing income on a tax return to not go too heavy with tax write-offs because lenders often look at your net income after all of your expenses.
4. Get pre-qualified with a lender

This is such an important step, and this step will save you from a lot of disappointment. what always ends up happening for the people that don't get prequalified as they go out they start looking and they find the perfect spot, they fall in love with it, it's amazing but it's slightly outside what they can afford and they can't buy it then everything else they see after that they compared to that one deal, that's obviously more expensive and a higher price point that they couldn't afford and every deal in comparison to that just looks like crap.

So just save yourself the heartache and the frustration and the wasted time by just speaking with a lender first. it's really as easy as going to a few different banks having them run your credit giving them your tax returns and bank statements and anything else they need and they will pre-approve you for a loan based on that information.

You can then go and take that rate sheet and go shop it around in other banks who will run the same information, they will require pretty much the same things and they will often beat that loan of the first place and then you just keep shopping them around against each other until you end up getting the best rate possible.

The advantage of having multiple banks approve you for a loan is really two reasons:

  • The first one is just having the security in the event, the first bank can't perform and giving you your loan.
  • Second is you often just get the lowest price possible on the loan you get.

A lot of people are worried that by going to different banks and having them run your credit, it's gonna dramatically lower your credit score and this is false. Any time a lender runs your credit anything within a 30 to a 60-day window after that is grouped all as one inquiry, this is to encourage rate shopping so that customers get the lowest price possible.

Running your credit score at ten times is going to have the exact same impact on your credit as simply just running it once.

5. Do your research

Do your research and see everything on the market in the area that you want to buy in find out which areas you feel are undervalued and poised to go up in price.

For me, I invest in areas that are just outside of other areas that have dramatically gone up in price and seen a lot of dune development. For instance, if I see one area going up in price massively but if you drive five minutes away, it's like half the price. I invest five minutes away because I feel like most people will eventually be outpriced of those areas and want to move just further outside of those areas where it's a lot cheaper and more affordable, and that in turn will end up driving prices up there and then it just continues to expand outward.

So in order to notice this and see this just be really really good at being able to notice what's going on in your market. drive around all the areas and see where new restaurants are going in, see where new hotels are going and see where new apartment buildings are going in, see where things are just generally improving and prices are increasing and then just drive a few minutes away from that.

Without doing this and without seeing a ton of properties, you're really gonna have no idea what you're looking at because you simply have nothing else to compare it to and ideally, you'll want to find something that just needs a little bit of love, just some really light cosmetic work, maybe the kitchen just looks like crap or maybe the bathroom is just old, maybe the landscaping just sucks maybe the paint is all spilling off.

Once you get into redoing foundations and rearranging floor plans and adding square footage and all that stuff, it just becomes a lot more expensive time-consuming and riskier to make your money back on especially as a beginner. I don't recommend this if you're just starting out.

6. Make offers on places you think are a good deal

It's really important with this that you know your price, you know what the home is worth and you've had the patience to wait until you find that deal. Even for me, it took me about six months to find the place I ended up buying, and I lost out on maybe four or five offers because they had the patience. I knew what the properties were worth and I didn't want to overspend on something that I didn't feel was 100% worth it.

So just have the patience to really take your time with this and do not get caught up in the emotional rollercoaster of competing and multiple offers to the point where you will overpay for something that's just not worth it. However, don't be stubborn, don't be an idiot and look at this with a long-term outlook over the next 20 or 30 years.

Overpaying by a few thousand dollars to get the absolutely perfect property is going to be worth it, you're not gonna look back thirty years from now and be like I only spent five grand in that property it wasn't worth it. If overspending by a few thousand dollars is going to get you the perfect place, then otherwise you're gonna have to spend another year of looking to find something similar to that where maybe the market went up five percent and all of a sudden that few grand you spend is nothing. Go ahead and overspend on that property, buy a few thousand dollars, knowing that in the bigger picture it's going to be worth it.

7. Do inspections

I recommend doing it as many inspections as you possibly can, just to get to know what you're getting into and the condition of the property. I usually tell my clients that these inspections are at the very least a break-even from what they're investing, for instance, if they're spending $2,000 on inspections at the very least, usually you can get $2,000 worth of repairs or credits to compensate you for all the money that you've spent. I also take this a step further and bring in one to two contractors to give me actual bids of what it's going to cost me to bring the property up to date and fix any issues.

The good news with this is that oftentimes contractors will do this entirely for free because they want your business. with this, they actually give you the first-hand experience of what's actually needed, what it's really going to cost, and with this, you get your work out of the way because you get bids in escrow.

8. Starting to do your minor cosmetic renovations

This is where you end up making instant equity because not only are you buying an undervalued property in an area that's poised to go up in price, but you're also buying a property that needs some work where you can add equity by simply fixing it up.

In addition to that, the more the home is worth, the more you can rent it out for which means the more money in your pocket.

Where do you find your contractors at?

  • Word-of-mouth: If I see someone that remodeled the property, I simply ask him hey who ended up doing this remodeling? who is the contractor? do you mind if I get their contact information? Most people are very happy to give a good contractor more work because it looks good on them and it helps the contractor out, and in turn, oftentimes the contractor will give the first person cheaper prices in the future because they know they're gonna bring in more business.
  • Yelp: Anytime I want to look up a different contractor, I simply type in the trade I need to look on Yelp and then look for people who have really good reviews, I then call them up, you get a few bids and few estimates from a few different people and you pick who you feel is going to be the best fit.

9. Find a tenant

The Internet is a great way to reach the masses sites, such as Craigslist allows you to list your rental property based on location making it easily searchable. Zillow also lets you post a free listing using their postlets app.

If you have your own website, make sure to list the property there and be sure to reference your website URL in your other ads.

Hopefully, at this point, you've been rented the property out by using my techniques on posting your ads on Craigslist or Zillow, and now you're officially a real estate investor who's making money every month.