Buying An Investment Property: Tips For Beginners

Broaden Your Education: It should go without saying, but the very first thing you should do before you even consider buying your first investment property is to educate yourself on, well, everything. It is true what they say: knowledge is power, and nowhere does that sentiment ring more true than in the world of real estate investing. I maintain that you mind due diligence and educate yourself on everything from the process to the area you intend to invest in. Delve deep into the logistics of your market and don’t stop. The more you know about an area, and a process, the better.

Determine Your End-Game: I highly recommend holding off on buying an investment property until you know what your reason for investing is in the first place. If for nothing else, you need to know which direction you are heading before you set out on your journey. Is your ultimate goal to acquire buy and hold properties as a retirement vehicle? Do you want to flip rehabs for your entire career? Before you buy an investment property, determine your end-game. That way, you will be able to tell whether or not your next acquisition gets you one step closer to your ultimate goal.

Determine Your Financial Goals: One of the first things you need to do before you buy an investment property is to gain some perspective on what it is you hope to accomplish financially. Are you looking to make a relatively small amount of money in a quick turnaround time? Or, are you looking to collect small, incremental paychecks over a prolonged period of time? Perhaps you are more keen on the idea of making a larger sum of money over a longer period of time. Whatever the case may be, identify your financial goals for buying an investment property; they may be the single greatest indicator for how to proceed.

Line Up Financing: As a new investor, it can be quite easy to get ahead of yourself. Notably, far too many new investors try to find a deal before they line up financing — they couldn’t be more wrong. Instead of prioritizing finding a deal, I recommend lining up your financing. Whether that means working with a private money lender, hard money lender, traditional lender or a partner, be sure to know where your funding will come from before you even look at a deal. Not only will securing your financing notify you of how much money you have to work with, it’ll also allow you to act faster in the event a great deal comes across your table.

Locate A Property: Obviously you need to find an investment property before you buy one, but the idea here is to locate a property in the location you want. If for nothing else, the location of a deal should be prioritized ahead of the property itself. Remember, the location is the one feature you can’t change, so it’s in your best interest to buy in an area that meets your needs. What’s more, the location will most likely set the tone for the rest of the deal. How much can you expect to spend? How much can you expect to make? Will you be renting the home out? When you are looking for a home, make sure the location checks off as many boxes as the actual house.

Pick An Exit Strategy: Once you have found a subject property worth pursuing, pick an exit strategy. Will you wholesale it, rehab and flip it or rent it out? It is important that you identify an exit strategy before you buy the home. That way, you can run the numbers before making a commitment to decide whether or not a deal is worth following through on.

Pick A Backup Exit Strategy: It is not enough to pick one exit strategy; you must have a backup plan. Any experienced investor will tell you that things don’t always go according to plan, so have a backup plan ready.