"Start Buying Rental Property with this 5-Step Framework"

Buying rental property can be time consuming. I literally drove by more than 100 multifamily properties, and physically inspected maybe 30 or so with my agent over the course of a year, before I made my first bid. And I bid on 3 or 4 different properties before I had one under contract. The bottom line is that buying investment property is definitely a "numbers game."

If you're totally new to all of this, you're probably wondering how to dive in to the wonderful world of buying rental property. I'll share with you what worked for me, and it involves 5 specific steps:

• Find a good real estate agent
• Practice running the numbers
• Conduct physical inspections (drive-bys + showings)
• Make an offer & negotiate
• Manage the contract process

STEP #1: FIND A GOOD REAL ESTATE AGENT

Eventually, you will need your own "team," including a real estate agent, mortgage broker, insurance broker, title company, attorney, home inspector, and a handful of trustworthy contractors.

But with the exception of a real estate agent, your team does not need to be assembled right out of the gate. You will gradually assemble it as you go. Click here for a more detailed discussion on how to find a good agent.

STEP #2: PRACTICE RUNNING THE NUMBERS

Ask your new agent to send you all the active 2-4 unit multifamily rental property listings in your target area, and practice running the numbers to identify the most promising ones. Visit my property valuation page to learn how to do this. There you will also find a spreadsheet model that you can use to do rapid-fire "back of the envelope" calculations to quickly screen properties for financial viability.

STEP #3: CONDUCT PHYSICAL INSPECTIONS

Once you have a short list of financially viable multifamily rental properties, take some time to do drive-bys. Whether the numbers work or not, you do not want to purchase any property in an especially bad area (in fact, you'll find that the numbers usually work best in such areas...you get what you pay for!). Plus, while not a perfect science, if the outside looks like it's falling apart you may want to pass.

After this process, you will have a list of maybe 3 or 4 properties to look at with your agent, instead of, say, 10 or 15. Have your agent schedule weekly showings, and bring a notebook to jot down notes so you can later use this info to adjust your bid amount. Click here for a free Property Acquisition Checklist to help facilitate this process (you'll need Adobe Reader...to download a copy, click here).

Keep physically inspecting properties with your agent in this manner every week and do not get discouraged. The majority of rental properties you come across will be poorly maintained and/or overpriced. Tenants beat them up, and many, many landlords could care less about maintaining their investment.

So, buying rental property takes time. All I can say is be patient, and remember that the more properties you inspect, the better deal you are likely to get when you finally pull the trigger.

STEP #4: MAKE AN OFFER & NEGOTIATE

Ok, so you've run a bunch of initial numbers, did a bunch of drive-bys, and physically inspected a bunch of hot prospects with your agent. Finally, you've found a 2-4 unit multifamily rental property you’d like to purchase. Time to negotiate!

STEP #5: MANAGE THE CONTRACT PROCESS

Yippee, your offer was accepted! So now what? Well, there are various steps that round out the process of buying rental property:

• Get the property "under contract"
• Initiate title work; note that some states require an attorney
• Conduct a property inspection
• Get an appraisal
• Arrange financing
• Get property insurance
• Get a property survey
• Review settlement documents and close the deal

This may seem complicated if you happen to be new to all of this, but it's really not. After you go through the entire process once, you'll be ready to start buying rental property like there's no tomorrow!

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