How to Invest In Real Estate [The Definitive Step-by-Step Guide]
As you are learning how to invest in real estate, I want you to understand that it is not as hard as you might think. Once you get past the fear of investing in real estate, the process becomes much more clear.
In this article, we will dive deep into the steps you need to take as you learn how to invest in real estate.
Here are the steps how to invest in real estate:
- How to Make Money 6 Ways When Investing In Real Estate
- Get Your Financial House In Order
- Get Real Estate Investing Education (I have lost $30,000 not doing it right)
- Save for a Down Payment
- Choose What Are Of the Country You Will Invest In (Not as hard as you might think)
- Find Good 3 Bedroom 2 Bathroom 1,200 sqft Properties
- Locate a Good Property Manager
- Buy the Property
- Have the Property Manager Get the Property Ready for Rent
- Have Your Property Manager Place a Tenant
- Make Money Every Month
Learning how to invest in real estate all starts with education and then implementation. Being an investor myself, currently 30+ rental investment properties, I know first hand what it takes how to invest in real estate.
Also, with coaching many, many others, I have helped them to build amazing businesses that make them money while they sleep.
I quit my job when I was 37 years old and I want to show you how to do it. It took me nine years to quit my job by buying one property after another, until I had 20 plus properties. Since then I keep growing my business bigger and bigger.
You Can Do Just What I Did!
You don't need to start with hundreds of thousands of dollars, have wealthy family members, or even be a real estate agent. All you need to start investing is real estate is the determination to succeed.
I want to show you how you can quit your job and dramatically change your life, by having rental properties make you money every single month.
Listen to the Podcast Episode on How to Invest In Real Estate
Why You Should Learn How to Invest in Real Estate
When you learn how to invest in real estate, you will hear people talking about many ways to do it, but there really is only one way to invest.
Investing means you are putting your money to work over and over.
If you just jump right in and buy that first property, you will probably make mistakes.
I’ve made so many mistakes, and I want to make sure all of my coaching students and everyone who goes through my online course, The Ultimate Real Estate Investing System, don’t make these same mistakes. The mistakes are almost common sense, but you might not realize it until someone tells you.
Why would you even want to start investing in real estate versus something else? Nothing else compares to the amazing benefits it has.
Six Ways Real Estate Makes You Money
1. Cash Flow
Money is coming into your pocket every single month, without you working at all. That is how I am able to not have a job, travel the world, be with my family, and not worry about paying our bills.
When rent exceeds your expenses, that is cash flow.
Here is an example:
Monthly Rents = $1,200
Monthly Expenses = $950
Monthly Profit = $250
Now if you had 10 properties like this that made you $250, then you would be making $2,500 a month!
The amount of cash flow that you can achieve is only limited by the amount of properties you want to own.
Best of all, you do the work one time and the property makes you money year after year.
2. Equity Capture
Equity capture means making money when you buy something. Imagine that you buy a car and make money the first second you buy it.
We know that is not true!
Any time you buy a car, you lose money the second you drive it off the lot, because it becomes used. If you buy a property for $100,000 and the market value is $125,000, you’ve captured $25,000 in equity and you can use that to buy more properties!
3. Market Appreciation
The market always appreciates. Even when a market crashes, it always goes back up. The market is currently right back up to where it was when it crashed in 2009.
The value of homes will always go up, even if it is just for inflation. Other things, like buyer demand and interest rates, can drive up the value of properties.
4. Forced Appreciation
Let’s say you buy a property for $100,000 and it is worth $120,000, because you bought it below market value, and the you put another $5,000 in it to paint and fix it up a bit, and it is worth $140,000.
There is a $35,000 gain on that property because you forced the appreciation up.
5. Mortgage Pay-down (Paid by Tenants)
You are not paying the mortgage principal or interest — the tenant is! Let’s say you buy a house for $100,000 and get an FHA loan and put 3.5 percent down, which is $3,500, and you still owe $96,500 on that property.
If you rent this property out for the length of the loan, you are not paying that mortgage balance. Your tenant is paying for the mortgage and the interest, because it is accounted for in your expenses.
6. Tax Advantages
Owning rental properties is a business and you get business write offs, you get to use capital gains, you can have tax deferment where you defer your capital gains to the next property (1031 Exchange), and there are many more.
Tax advantages are ways to get out of paying taxes legally and make money at the same time.
If you want to hear more about this, check out Episode 028: 6 Ways Real Estate Makes You Money.
Bonus Reasons to Invest In Real Estate
An Automatic Business
It is a business that runs itself. I have taken weeks-long vacations. In 2017, I went to Japan with my family for six weeks. In 2018, I went to Europe with my family for six weeks and traveled to 11 different countries.
The way I make my business automated is by hiring others to do the work for me. They do all the work and I make money from their labor.
In all the vacations I take, time spent not working a J.O.B., etc. I didn’t do any work at all on my properties and I still made money every month.
This year, we are driving from Florida to Washington D.C. and New York for a four-week trip, because we have a couple conferences to go to.
The beauty is that other people do the work for you!
You can retire early and quit your J.O.B, which stands for Just Over Broke.
When I quit my job, it was one of the best days of my life.
Imagine not having to worry about your bills anymore or being able to go on vacation, because you are earning money each month.
Almost Never Lose Money
If you invest in real estate rental properties, there is a 99% chance you will not lose money, if you do it the right way. So many people have fears and concerns that they are going to lose money, because of “what ifs”.
If you do the business right, you will almost never lose money each year. In fact, you will almost always make money each year.
It has been at least 10 years since I have had to write a check for any of my properties. I am always getting checks because my properties are making money.
Generational Wealth Transfer
Real estate investing is a way to bring financial wealth to you and generations to come when you buy and hold that property. You can pass it down to your children, they can pass it to their children, and so on.
Until you sell the property, you are able to give the properties to the next generation. These properties will be making them money without them even working.
PRO TIP: Teach the Next Generation How to Invest In Real Estate
There is a terrific saying that apply's here:
“Give a man a fish, you'll feed him for a day. Teach a man to fish, you'll feed him for a lifetime.”
This is what you should be doing for your children, grandchildren, and great grandchildren. Show them that there is another way to make money than working a J.O.B. (Just Over Broke)
When you show them what is possible, then give them the tools, the will be set up for the rest of their life to be financially free.
What Is Not Real Estate Investing
In my opinion, investing is buying and holding something in real estate. Investing is when I put my money in something and I make money over and over again, until I sell the property.
Here are examples of things that are not investments:
You may invest your money for two months or six month and then pull your money back out, but it is not investing. You are buying a property, fixing it up, and selling it to someone else really quickly to make money.
If you flip one property and makes some money, that is great. However, you need to flip more than one property to keep making money.
You don’t have a cash machine where money just keeps coming in. Once you sell the property, it’s gone. You can’t sell that property over and over again. I could rent a property over and over to many tenants.
Flipping is basically a job.
You work one time and you get paid one time. You don’t work one time and get paid multiple times.
Wholesaling is where someone finds a person who wants to sell their property, they talk them down, and get them under a contract with them instead of a realtor.
They then find a buyer who wants the property and they make a commission on the connection just like a realtor would.
A wholesaler completely relies on the next deal. If they don’t get the next deal, they don’t eat. It is not investing.
Being A Realtor
Being a realtor is a job. When you sell a property you make money, but then you need to go out and do it again. If you don’t work for an entire year, you won’t make any money.
If I don’t work for an entire year as an investor, I still make money, because my property works for me.
I haven’t worked in two and a half years, since I quit my job, but I am making hundreds of thousands of dollars over and over again.
The Steps – How to Invest In Real Estate
The steps to start investing are going to be broken up into a couple of podcasts, because there are so many steps I want to give you so you get a good understanding of how to invest in real estate. Here are some of the steps:
1. Get Your Financial House in Order
Make sure you are financially set to start investing. If you inherit or win a million dollars and don’t have your financial house in order, you will blow through the money and you will be left with nothing.
You need to understand money, understand how it can benefit you, and understand how to use it for your benefit. Here are three ways to get your financial house in order:
Look at everything you are spending money on and figure out if you can reduce it or cut it out. Instead of paying an $80 cable bill look at alternatives like Hulu or an antenna.
Once you have enough money coming in, then look at getting cable. Now is the time to sacrifice so you can live the dream life later.
Increase the amount of money you make every month so you can increase how much you can invest into real estate.
- Ask your boss for a raise
- Get a second job
- Drive for Uber on the weekends
- Start a side business
- Create an online business
- Sell items on Amazon
The means by which you increase your income doesn't really matter. The only thing that matters is that you put more money into your pocket every single month.
This money that you will be saving will be used to buy your first investment.
Destroy that debt as quickly as possible.
I am not talking about a mortgage, I am talking about consumer debt, like credit cards, car loans, etc.
Get rid of your school loans, car loans, etc. I have students who have sold their cars and bought less expensive cars so they have money to invest in real estate.
PRO TIP: Debt Snowball to Eliminate Debt
If you have debt on many credit cards, use the snowball method. If you have four cards, attack the lowest balance first and get rid of it as fast as possible.
After that, apply that payment to the second lowest balance, and so on.
Before you know it, you will have your credit cards paid off successfully and be read to start investing.
PRO TIP: When the Debt Is Gone, Save Your Payments for Investing
When you successfully go through the debt snowball, you will have a large monthly payment you will be making each month to the last credit card. Once the card is gone, you now have that entire payment at your disposal.
Don't spend it. Save it in a savings account that makes you money every month. Here is a link to the bank that I personally use that gives me 1.85% return on my money in a savings account.
Buy Your Own House and Stop Renting
There is a reason I rent my properties to people.
If you don’t have a home you live in and you rent, you are putting extra money into an investor’s pocket, and I want that to be you.
Buy your own house and stop renting, so you can stop throwing money away. When you own a house, you are putting money in your own pocket and you are getting equity in that property.
You can use that equity to buy more properties that will make you money.
Check out the BRRRR Strategy I talk about in Episode 006 to learn more.
Create Your Investing Goals
Create your goals so you can understand how you are going to be able to quit your job, or change your life, so you can get the life you want.
Figure out the best path for you. If you don’t have options, you will react.
I’ve done a lot of things right and a lot of things wrong, and I know just about every single thing that is going to happen and the decisions you will need to make, the options you can have, and the route to go.
If you want to quit your job within five years, figure out how to get there. Or, maybe you love your job and just want more money each month.
Look at where you are starting and what you can do to accomplish your goals.
PRO TIP: Don’t lose sight of your goals!
Life is going to get in the way and there are always excuses, but you need to push through those.
It is tempting to use the money you are making on other things, but you can do it! I understand, because I have been there and have made this mistake.
2. Get Real Estate Investing Education
When I bought my first rental property, I did everything wrong. The main reason was that I did not learn how to invest in real estate.
What I should have done was hired a real estate investing coach to help me through all the pitfalls that can come with investing.
Another thing I should have done was to pursue education in real estate investing.
Now I did read a couple of books and blogs, listened to a couple of podcasts, and decided to go ahead and invest.
There was a problem though. That little bit of education was not enough.
In doing that, it has cost me tens of thousands of dollars, maybe $30,000, I don’t want to count. I bought two properties at the same time around 2010.
I didn’t know that the power was off for about a year and the city said it had to be brought back up to code.
In order to get the electrical turned on, I had to rewire the entire house and it cost me $3,500 for one house, and it was a total of $7,000 for both.
Had I known this beforehand, I would have lowered my offer by $3,500 each.
Get a real estate investing education!
I offer both one-on-one coaching and an an online course called the Ultimate Real Estate Investing System.
This course walks you through, beginning to end, how to create a fully functioning rental property investing business that makes you at least $250 a month with one rental property.
You can grow the business yourself from there.
If you want to learn more about coaching or the online course, click here.
When you follow these steps, and get over the fear, that is when you make the decision to buy your first property.
If you get started on these steps right now, you will be in a much better position than someone who decides to skip ahead and buy a rental property.
Listen to the Next Podcast Episode on How to Invest In Real Estate
When I was younger and my parents turned 40, I specifically remember them having parties with funny over-the-hill presents.
Back when I was 15 years old, 40 seemed old!
Fast-forward to now, I was 37 years old when I quit my job, because I started buying real estate rental properties when I was 27.
Property after property, I just kept buying and buying as fast as I could. I knew that eventually I was going to be able to quit my job, and now I am turning 40 years old and I will never work another job again. I am so blessed to be able to say that!
Now, I am looking forward to my 40s where I will be able to do more great things with my life and teach even more people how to quit their jobs and change their lives.
Wherever you are, start investing now!
“The best time to plant a tree was 20 years ago. The second best time is now.” — Chinese Proverb
Plant that tree now, because before you know it 10 years will go by. If you had started investing 10 years ago, you would already be retired.
Start investing today with education, knowledge, and learning, and then start putting your money to work in real estate rental properties.
3. Anyone Can Be An Investor!
You may be thinking…
“I’m not rich.”
“I don’t have a lot of money.”
“I don’t have any experience.”
“I don’t have any contacts.”
The key is that just about everyone starts from ZERO.
We all have to start somewhere and I get it. It is hard to get started especially with no money. I can relate because I was in your shoes!
If I can do it, you absolutely can too. Every single one of my students that have quit their jobs will tell you that they are normal people just like you.
They have applied themselves, saved money, put that money into a rental property, keep it rented, make money every month, and do it all over again.
Eventually, you will have so much money coming in every month and will never need to work another job again.
4. Save for a Down Payment
A down payment is going to allow you to buy a property for less than it is worth. When you get a mortgage, you will need to put money down as part of the total purchase price.
There are many ways to come up with the cash for a down payment and there are many ways to have other people help you to make that money.
If you are like me, you don’t have much money.
I didn’t have much when I first started. In fact, before I got married, I had $0 in savings and I had about $2,000 of credit card debt that I would pay off every month.
My wife had a little bit of savings, we got a little bit from our wedding, and then we saved more money to eventually buy my first property.
When you are looking at what you need to do to save for a down payment, you need to answer the question:
“What are your goals?”
Your goals dictate how much money you will need for a down payment, what type of properties you are going to buy, how fast you are going to buy them, etc.
If you want to buy higher priced homes, you will need a larger down payment, and if you want to buy lower priced homes, you will need a smaller down payment.
Pay Yourself First
There are many ways to save for a down payment. This is why I talk about increasing income and reducing expenses, as well as eliminating debt.
When you start knocking those out, you increase your ability to save money, and you are able to start paying yourself first.
You need to pay yourself first, at minimum 10 percent. If you are just getting started, pay yourself 1% or 5% — pay yourself something.
Your boss pays you, but when you really break it all down, that money is already spent. You need to use it to pay for your car, rent, phone, cable, and other living expenses.
Whatever expenses you have, they are taking money out of your pocket that you cannot use for investing.
When you pay yourself first, you are putting money into a savings account and you can hopefully earn interest. When it is time to buy a property, you have money saved up for the down payment.
If you already have money and you are already saving, I strongly recommend that you put the money into a savings account that makes you one or two or three percent interest. You want the money to be liquid.
Liquid means you can get to the money at any time, like a checking account. You can go in and pull the money out whenever you are ready.
When you put that money into a CD or into a stock or mutual fund, it is going to be harder to access. There will be fees and penalties for taking the money out early.
If you aren’t going to touch it for a few years, that is okay, but I like to have the money ready to go if a deal comes along.
If you make $2,000 a paycheck, take $200 and put it in a savings account.
Keep doing this every single month.
Any money my kids get from a birthday present or from doing chores like yard work, I have them take out 50% and put it into savings.
For the other 50%:
- 10% goes to God
- 20% goes to mommy to help pay for household expenses
- 20% they get to keep and spend
Each of my kids have a savings account and they can watch it grow and see when it earns interest. They want to put more into savings, because the more they have in there, the more interest they make.
Start saving by paying yourself first.
Ask Your Friends and Family
As you are building your business, if you come across a good deal, you may want to ask your friends and family to invest with you.
When I was first starting my business, I asked my dad for a loan. He loaned the money to me, but he charged me 9% interest, because that is what he could have made in the stock market.
Even though I was paying him a high interest rate, I think I was making like $400 on it every month. Eventually, I paid it off. You may not have this option, but think of other family members or friends that may be interested.
PRO TIP: How to Ask Friends and Family for Money
It can be awkward to ask your friends and family for money, so what you want to do is tell them about the deal.
Make sure they understand the numbers as well as you do, where the property is located, how much you are going to be making every month, what the mortgage is, how much expenses are, what your income will be, etc.
Make them understand that you absolutely know this business inside and out and that you are trustworthy to have their money.
You will give them a signed note, basically paperwork that says they are loaning you money at a certain interest rate and you will pay them back. It is just like you are getting a mortgage or a car loan and it will stand up in court.
Investors want to feel comfortable that you are not going to lose their money. They also want to make sure they are going to make money.
I personally would recommend not getting partners and splitting the money 50/50. This business is just fine if you can do it on your own, and it is much better than having a partner.
Because of my past experiences, I will never have a partner.
Often I have people ask me to go in on deals with them, and I always turn them down. I have never had partners and I will never have partners. It just doesn’t go very well. You have 100% of the liability and only 50% of the profits. It isn’t worth it.
Cut Your Expenses and Increase Your Income
Make sure your money is staying in your pocket and make sure to keep saving. As you invest in real estate, you will find that it is so much easier to buy properties when you have money.
It is much easier than asking other people or getting a loan. As you build your business and save even more, you will be able to do the B.R.R.R.R. strategy. Here is how it is broken down:
B.R.R.R.R. Investing Strategy
B: Buy the property
R: Rehab the property
R: Rent the property
R: Refinance and pull all of the money out
R: Repeat the process
When you have cash, when you pay yourself first, when you increase your income, and when you cut expenses, you have more money to invest and it makes business so much easier.
Refinance Your Property
If you own a home, you can refinance your property or get a home equity line of credit.
You can pull out the equity. If the property is worth $200,000, but you only owe $100,000, that is $100,000 in equity that you can tap into to buy a property.
I’ve done it so many times where I pulled money out of my home and bought a rental property. I bought one property with part of the money and the monthly cash flow paid for the increase in mortgage payment.
Then I bought two more properties with the balance of that money and made $250 or more on each of those properties after expenses.
5. Choose What Type of Properties You Will Invest In
This is a big decision!
I get so many people asking me where to buy, what type of properties to buy, is this a good deal, etc.
It all depends on your goals, what you want to do with your business, how quickly you want to grow, and your risk tolerance with debt. There are so many things we need to account for when deciding which properties to buy.
Here is a list of properties you might want to buy:
Lower Priced Homes
This includes homes between $20,000 and $75,000. There ARE properties in this price range.
More than likely, they are older homes and they have a lot of maintenance and repairs that are needed, so you will be putting more money into it on a monthly or yearly basis than you would a newer home.
The great thing is there is high cash flow on these homes.
In the Midwest, you can buy a home for $25,000 or $30,000 and you can make $650 in rent. If you pencil everything out, you should be able to make about $400 in passive income.
In a little over six years, you will have all of your investment back from your property and all of that money will be profit. That is a great return!
In addition to increased maintenance expenses, there is a higher turnover of tenants. This could mean that every six months, every year, or every year and a half a tenant moves on or they get evicted.
In these lower priced homes, the clientele is a little more transient and they move a lot sooner. Ways to mitigate this include screening tenants, finding the right tenants, making sure they have the right credit, and doing background checks.
PRO TIP: Background Checks
Background check tenants in any type of home that you rent out, and make the tenant pay for it.
Higher Priced Homes
These homes include newer homes, better areas, better clientele, and people who want to live in your property. The higher priced homes will have lower cash flow, because you will more than likely need to get a mortgage on the property.
That mortgage will need to be paid, because you aren’t paying for the property outright. The good news is that your tenant is going to be paying this for you!
Another good reason to invest in higher priced homes is lower turnover and lower maintenance costs.
PRO TIP: The Right Type Of Property To Buy
Invest where you make a minimum of $250 or more every month on every single property.
Do not buy a property unless you are making this much or more. There are so many things that can happen with your property in one year.
If you only make $50 or $100 a month, your entire yearly profit could be eaten up if a furnace goes out or if you need to replace the roof. Make sure you have adequate money coming in to pay for those expenses.
It is easier to find homes that make this amount when you know the tricks of the trade.
Middle Priced Homes
These are homes that are around $100,000. They are usually solid, older homes.
Cash flow is right in the middle, rent is in the middle, tenants won’t move out as much as a lower priced home but won’t stay as long as a higher priced home.
These are usually lower maintenance homes.
Look for an Area in the Country to Invest
Many people think they can’t buy rental properties, because they live in a high cost of living area.
I suggest looking at an area in the country that is going to make you money.
Narrow it down first by state, then by city, and then by neighborhood. I suggest looking in the Midwest to maybe the lower southeast states like Florida.
There are some expensive areas, but you can find middle priced homes for $100,000 to $120,000. You will probably be able to make $250 to $300 a month in profit on these properties.
Don’t go northeast like to Washington D.C., but focus on the south, like the Carolina's. There are some good places to invest in those areas.
Look at the Movement of the Area
When you are finding an area in the country to start investing, there are going to be many things you will need to look for…
- What is the population like?
- Are there people in the area that are staying, or are people leaving?
- What are the migration habits?
- Are companies moving in or out?
- Is it a state that is heavily regulated with lots of laws and taxes?
- Do people want to live there or are they fleeing?
You want to find an area in the country that has a decent amount of net migration going in instead of going out.
Similar Price Points
You will want to find a city that has similar price points on all of their properties in one area.
Let’s say you find a great property in a great area, like a $500,000 home in an area with million dollar homes, or a $100,000 home in an area of $200,000 homes.
It is a great deal, but if you can’t find any other properties like it, you are going to set up an entire business just for one property. I am not saying not to do it, but it is a lot of work.
I encourage you to find an area of the country where you can build a business from the ground up, where people work for you and where you can continue to find more properties in that same area.
This way you don’t need to look in another area and find another property manager and figure out which parts of the city are good to invest in, etc.
Go after those good deals, but as best you can, try to stay in areas that have similar properties that you can just keep buying more of that inventory.
Set up your business where like a convenience store a candy bar is one property. It is one piece of inventory that you put into your business.
You want to continually have that business increase inventory, so more people can find you and pay you to live in your property.
Evaluate the Crime Rate and Talk to your Property Manager
When looking for properties, you want to look at crime and the areas in the city that are worse than others. What does your property manager say about the property?
Talk to them first, because they know the area. If your property manager says they won’t manage properties in an area because of the crime, you might want to think about not buying that property.
If nobody is going to manage it for you, and you are in another state, don’t buy it, because it probably won’t benefit you.
Look at the Amenities
Look at what the area has to offer.
For instance, there are a lot of attractions in Orlando, Florida, like Disney World, Sea World, Busch Gardens, etc. People want to visit that area, so you could potentially do an AirBnB, and rent the property per day instead of per month.
This is another great option.
This could be a nice place where people want to live or it could be an area where there are big companies that hire lots of people.
There are great areas all over the Midwest and south.
Determine Your Goal and Your Price Point
Your goal and your price point will dictate what you are looking for in a city. If you are looking for $100,000 homes and you are finding $20,000 homes, that doesn’t fit your goal.
It might be a good area and a great place to invest, but you need to look into it.
- What are your goals?
- What are the type of properties that will help you get to your goals the fastest?
- Where in the country do you find those properties?
Answer these questions and then start honing in on those properties in those cities
6. Walk-Through of How to Find Properties In Other States
You may be wondering, “How do I actually find those properties?” A quick and easy answer is Zillow.
This is a great tool that I use all of the time. Go to www.masterpassiveincome.com/zillow, to watch a step-by-step video of how I use this tool.
Also, check out the Cash Flow Calculator on my website to evaluate potential properties.
Listen to the Next Podcast Episode on How to Invest In Real Estate
Benefits of Real Estate
I not only love real estate, but I love what real estate affords me to do. Last year, I traveled for six weeks all through Europe in 11 different countries with my wife and my four kids.
It was amazing!
The year before that, we went to Japan for six weeks. My wife, my four kids, my dad, and I drove 1,200 miles through Japan. It was fantastic.
This year, we are going to be going to the east coast from Florida to Washington D.C., and into New York.
Real estate allows us to live the live that we want. I realize that I absolutely do not deserve the life that I have. I wake up in the morning, go to the gym, come home, and have breakfast with my wife and kids.
I have such an easy life and I don’t deserve it, but I keep wanting to give back, and this is why I have the podcast.
7. Build Your Business First
Let’s talk about how to build your business in order to make the business run right. It is so easy, in fact, it is the easiest thing to buy one property.
Anybody can buy a property next door, or down the road, or even 3,000 miles away. It is easy to do. Technology makes it so simple!
What you want to do is build the business first and then buy the properties.
Think of your property as inventory that you are putting into your business. If you don’t build the business first, you cannot sell or rent that piece of inventory. This is why you want to build the business first.
Where Do You Want to Invest?
We've already talked about finding an area of the country to invest in.
In the Zillow video above, check out how I find new areas of the country to invest.
Usually, the Midwest is a good place to invest in lower priced homes, but there are properties everywhere.
In a previous episode I talked with an investor who invests in Washington D.C. — one of the most expensive places to buy! He still makes money, cash flow, every single month from properties he’s investing in.
There are ways to invest everywhere in the country. What I suggest is you look for your goals.
What are your goals and what are your means to achieve those goals, like how much money do you have saved up and how much money are you able to save in the future.
When I work with my coaching students we talk all about that.
The biggest thing I love to give all of my students are options. I hate being reactive, where you only have one or two options. When you are proactive, you have many, many options.
I love to give my students so many options so they can make the decision for themselves and what is going to best fit their goals.
Making sure my students see the options, see the pitfalls of each option, see the outcomes of each option, and be able to run with that. I also love analyzing deals with my students and evaluating the pros and cons.
I had one student email me asking about a property and it was literally built into the ground. There was a hill and someone built it like a hobbit house. He would have had a hard time renting that house out!
8. Get Your Financing In Order
Once you find an area of the country to invest, the next step is to get your financing in order and start building the business.
It is so easy to start finding properties and get lost on Zillow looking at homes, but at this point, refrain from that. Try your best to not go that route!
Make Sure There Are Enough Properties In the Area
You want to make sure there are properties you want to buy in the particular city that you’ve chosen. Make sure it is not just a one-off deal, but that there are other properties that fit your goals.
My suggestion is to find a city that has similar homes so you can continue to buy more inventory and put it into your business. The hardest part is building a business so it runs itself.
The last thing you want to do is do the work yourself.
Choose Your Financing Option
Next to figure out is how are you going to get financing? How are you going to get a mortgage to buy this property? If you have cash to buy a property, that is fantastic.
If you can start with buying properties with cash, start there!
You definitely want to do that, because you can refinance the property and pull the money back out.
PRO TIP: Buy With Cash If Possible
As you are building your business, you are going to start with getting a mortgage, and then you are going to get a property with another mortgage, and then another with a mortgage.
Eventually your business is going to be big enough where you can buy properties with cash, refinance the property and pull out the money to buy another property.
Find Two or Three Mortgage Brokers
In each particular state, you are going to have a mortgage broker.
Let’s say you are investing in Indianapolis, Indiana.
A mortgage broker in New Jersey is not going to be able lend, unless they are licensed to, because the state needs to approve that broker to offer loans.
You need to find a mortgage broker, or two or three, in that particular state who can lend in that state.
PRO TIP: Use Your Network
Whoever you are currently working with that you actually enjoy, more than likely they have other contacts that they network with that they can refer you to.
Ask your current mortgage broker if they can refer you to a mortgage broker in the state you are investing in.
Let’s say you want to start investing in Indiana. Find three mortgage brokers with a simple internet search.
PRO TIP: Duckduckgo.com
I like going to search engines that don’t track what I am doing. I use www.duckduckgo.com. It is a search engine that doesn’t track anything you do to sell it to other companies.
Type in “Mortgage broker Indiana”, or whatever state you are searching in.
Here is what you want to ask them about:
- The type of fees they are going to charge
- What type of points they are going to charge
- What type of interest rate they will charge
Get the rates, fees, and points. A point is a percentage. If they say it will be two points, that means two percent of the entire loan amount that you will need to pay.
PRO TIP: Don't Run Your Credit
Every mortgage broker is going to tell you they need to run your credit score to tell you what rate and terms they can give you. Anytime someone runs a credit check on you, it dings your credit.
They will say it is a soft hit, but tell them that when you are ready you will give them your Social Security number. Tell them what your credit score is and ask them to give you rough numbers for that score.
Don’t have them run your score until you are ready to get the mortgage and move forward, because you want your score to be as high as possible.
Get Your Documents Together
When you are working with a mortgage broker, you want to have a few things ready:
- Two most recent paycheck stubs: They want to make sure you have the ability to pay back your loan.
- Last year’s tax return: Make sure your tax returns are legit!
- Two months of your bank statements: This is to show that you have adequate money to pay for the down payment and that you have money ready.
- Investments: For anything that reports earnings or income for you, make sure you have this ready as well.
You want to show your financial ability to pay off the loan and that you are financially smart.
You want to be able to show them everything you have been doing with your money so you can show them that you are a worthy person to borrow money from them.
Get Pre-Qualified For A Loan
Once you know how much money you are going to be able to borrow for an investment property, you want to get a pre-qualification letter from the broker.
To get this letter, they will need to run your credit.
After this is done and you have the letter, you can put an offer on a property and you can prove you have the available funds to buy the property.
When I sell homes and somebody comes to me with an offer, but they don’t prove that they have the ability to buy, I usually don’t accept it or I tell them I need the pre-qualification letter.
I want to make sure if I go through a 30 or 45 day escrow period that the bank actually has the money to lend this person.
9. Build Your Business Before You Buy the Property
The easiest part of the process is buying the property.
The hard part is building the business.
Find A Good Property Manager
You are building a business that is going to be on the ground working for you in that particular city. Interview as many property managers that you can.
Don’t think of this as homework you can skip over.
PRO TIP: Take Your Time
Don’t skimp on time, when it comes to a property manager. Spend as much time finding the right property manager as needed.
The last thing you want is a bad property manager. That will be bad for your business.
Try to get five or six property managers that you can interview. Get as many as possible.
PRO TIP: Hire slow and fire fast.
When you know someone is stealing from you and it is time to move on, fire them fast.
The big thing is to hire slow. You want to make sure this property manager is going to be sticking around with you for 5, 10, or 15 years. I hate changing property managers.
Find Three Realtors
It is easy to find realtors, but the hard thing is to find a realtor that works with investors. I’ve had realtors treating me like a home owner and I’ve had to tell them I am investing, not living there.
PRO TIP: Finding Realtors
When you call realtors, ask them “Do you know how to find investment properties that invest in cash flow? Can you find me properties that provide cash flow?”.
Find Three Wholesalers
Find three wholesalers that are going to find properties for you. Wholesalers are basically realtors without the license.
In my opinion, they are one step better, because they find the sellers. They don’t just wait for people to sell, they find them and then they find buyers. Wholesalers work with people who are not yet ready to sell.
They rely on finding off-market properties.
PRO TIP: Finding Wholesalers
If you want to find wholesalers, there is an easy way to do it. If you are driving through the area and you see signs that say “I buy houses cash” or “I buy houses fast” and give a phone number, those are wholesalers’ calling cards.
Call them and tell them you are an investor and ask to get on their buyers’ list. They love finding buyers!
10. Find Investment Property Deals Through Websites
Go to www.masterpassiveincome.com/roofstock. Roofstock is a marketplace where people list their investment properties.
Roofstock does due diligence and makes sure everything lines up. After you see what they say about a property, do all of your own due diligence and run your own numbers and do your own inspection.
This is a free service and is great way to find properties.
Go to www.zillow.com. You will be able to find properties on this website that are on the MLS that are even listed for sale by owner.
Go to www.mls.com. This is the Multiple Listing Service. Anytime somebody goes to a realtor and says they want to sell their house, that realtor lists it on the MLS.
PRO TIP: Classified Ads
Go to www.craigslist.org. This website is basically a classified ad for everything and anything, including properties.
After you have found a property, the next thing is to do your due diligence. During this process, you are accounting for all of the expenses and analyzing the property.
When you are checking your numbers you are going to figure out if it is a property that you actually want to buy, and you will find out if your property manager actually wants to manage the property.
PRO TIP: Make Sure You Make $250 Monthly
Make sure you are making at least $250 or more in passive income on each property. There are so many places in the country that will make you that much money.
You will save yourself a lot of grief and a lot of money and almost never, ever lose money, if you follow this tip.
Check everything! Don’t just believe what everyone says.
PRO TIP: Verify What Your Realtor Tells You
If your realtor says it is a great property and you will be able to rent it for $8,000 a month and you only need to pay $5,000 to buy it, watch out! They want to sell a property.
Most realtors do not understand investing AND they want to make a sale. Realtors may have a good understanding of what you can get for rent, but more than likely they don’t. I go based on what the property manager says.
PRO TIP: Verify With Other Team Members
Use every single person that is in the business to find out about the area and the property. Wisdom comes with many counselors! When I buy in a new area, I have a lot of people tell me about the good, the bad, and the ugly of the area and the property.
“Plans fail for lack of counsel, but with many advisors they succeed.” — Proverbs 15:22
11. Due Diligence Checklist
During this process, you are trying to make and save as much money as possible.
Run the Numbers
Make sure the property will make you money every single month.
Make sure your property manager agrees with your numbers and they are okay with managing the property.
Talk to your realtors
Make sure you are getting the best price. Negotiate!
Make sure you have contractors lined up and their quotes are included in your numbers and that they are ready to go.
At minimum you want to get a home inspection. I will pay somebody $450 to look through a property for me and get me a whole printout of the good and bad of the property.
If there are issues with the property, the seller won’t negotiate, and I have to walk away from the property, I tell them the offer is always on the table.
PRO TIP: Always have an inspection on every single property.
Make offers on properties that fit your business model and your goals.
You can have your realtor put in the offer for you. ALWAY negotiate prices.
Negotiate, negotiate, negotiate!
Instead of going through a realtor, you can go through the seller or the seller’s realtor directly.
PRO TIP: Work With the Sellers Agent For A Discount
If you go through the seller’s realtor, ask them to knock off a percent for you, since they will make both the buyer’s and seller’s commission.
However, don’t go behind your realtor’s back or wholesaler’s back if they brought you the property.
Go to a title company
After you have a signed contract, go to a title company. A title company is a bunch of people that look at the title of the property.
They check everything from who owns the property, if there are any liens, or if there are back taxes owed.
If the property owes back taxes, somebody needs to pay it.If there is a lien on the property and you buy it, you will need to pay that lien.
The “chain of custody” is a crucial term.
It is used by courts of law and if there is anything wrong with the title, they will look at the list of people who’ve owned the property before you.
Have the title company do the work!
Work with the title company if there are any issues.
Rehab the property
Once you own the property, have your property manager or your contractor fix it up to get it rent ready. It doesn’t have to be the best house on the block, but you want it to be on par with every other property.
If you overdo a property and put $10,000 into it when it only needs $2,000, that is $8,000 that was spent that will not raise the rent more than $25 or $50 a month.
Even if you end up getting $100 more a month, it will take you 80 months to recoup your initial cost.
Don’t overdo the property!
Find the right tenant
It is easy to find a tenant who says they have an income, but to find the right tenant, that will make or break your business.
PRO TIP: Run Background Checks
Run background checks including criminal, credit history, eviction history.
NEVER place any tenant in your property that you have not run a background check. I had somebody who looked great on the application, but her background check showed four evictions in the past three years!
I didn’t want to be the fifth eviction, so I passed.
To use the free service that I use, go to www.masterpassiveincome.com/avail.
They will list the property to a dozen different websites, find tenants, run background checks, and the system manages the properties (maintenance requests, income, expenses, communication, etc.).
The property manager will usually run the tenant they find by you.
PRO TIP: Find the Right Tenants
I don’t like renting to people who are cohabitating, because in every situation I have experienced, they break up within a couple of months! One moves out, then the other one cannot afford the rent by themselves and then I have an eviction.
If they are engaged that is a little different, and if they are married that is fantastic. We aren’t discriminating, it is because their finances don’t fit the type of property.
In the boyfriend/girlfriend situation, total rent is $1,200. Working together, they each make $1,000 a month, so one of them on their own cannot pay for expenses.
PRO TIP: Keep Your Reasons To Yourself
If you ever pass on someone as a tenant, never say why you are passing on them.
All I say is you haven’t been selected, or I went with someone else.
You don’t need to tell them anything and it is usually better not to. I had a property manager once say a renter wasn’t picked, because he was an ex-con.
He said he was going to sue me for discrimination, but ex-con is not a protected class.
There is so much more to learn and I want to show you!
This is only the overview of the process to get all of this done.
12. Things You Need When Selecting A Tenant
Get An Application
Have everything written down, from their Social Security number to their address where they currently live to their past addresses.
There are going to be so many things that you will need as reference for the future in case of eviction or if you need to contact them.
Make sure it is all written down. Inside my online Ultimate Real Estate Investing System, I have all of these forms, contracts, and applications. Make sure every adult living in your property is on the lease, not just one person.
Make sure you get references from their work, from where they are currently living, and from where they have lived before.
PRO TIP: Check On The Tenant
If you just go back to where they are currently living and talk to that property manager, they may say it is a bad tenant, even though they are good, because they don’t want them to leave.
Or, the more likely situation, they may sugar coat how good the tenant is when they are actually horrible, because they want to get them out of the property.
Get one reference prior to their current living situation.
Make sure they currently have a job and they actually work where they say they work.
PRO TIP: Go To Their House
If you are managing the property yourself, and if you are going to be selecting the tenants yourself, when you sign the lease with them, don’t meet them at the property.
Go to their house.
You are going to see how they live in their current home.
They don’t have the lease yet and if you find 15 cats and cereal spilled all over the place, you can back out. Just say that you need to leave and check something. It is another way to see if they will be a good tenant.
13. Placing the Tenant In Your Property
Collect First Month’s Rent And Security Deposit
After the tenant signs the lease, collect both the first month’s rent and a security deposit.
PRO TIP: Get Extra Deposit for Bad Credit
If they have bad credit, have them pay the last month’s rent as well. Some people will say no and some people will say yes. It is more insurance for you.
Give Them The Keys
Put them in the property by giving them the keys and giving them access.
The work is done!
If you go through the process to buy one property and get your property manager and your contractors in place, it is a lot of work.
The next time it is so much less work. It takes me three hours to buy one property and put that into my business.
If I wanted to buy a property right now, I could go into whatever area I am investing in, find a property, and three hours later I have another piece of inventory in my business.
It is super simple and I love showing people how to do it. You can learn real estate investing too.
Get the FREE Real Estate Investing Guide
Free Investor Training
Get What You Need To Successfully Invest in Real Estate
Get All of the MPI Courses Plus Coaching!
6 Masterclass Courses
Premium online courses for any level of investor: beginner-advanced. Completely go at your own pace and can be taken through “Self-Study” or through “Membership”.
Fast-track your investing success with access all past students’ work. Get access to the list of places to invest, business contacts, lenders, and resources other students have already found.
Work with MPI Coaches and Students inside the MPI Student Community.
Student Success Program
Pair up with another like-minded student for accountability, and crush your investing goals together.
Real Estate Wealth Builders
Get the coaching, education, community, and resources you need to become a successful real estate investor.