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How to Buy Your First Rental Property

Real estate is clearly a powerful investment tool and has made many people wealthy and many more people at least wealthier. There are many paths to getting financially healthier with real estate and yet the intention of this report is to help you begin to consider how you may begin this process and what considerations there are to make. The real estate markets presently are in such form that it’s possible and likely to find deals that present the investor with POSITIVE, CASH-ON-CASH RETURN! These are the first two important fundamentals of a real estate investment.
Prior to any venture or endeavor, and especially with real estate, it’s appropriate to sit down and define some personal objectives and outcomes. Things that you may want to begin considering are:

• What is the investment time horizon? In other words, are you investing for short or long term?
• What is the primary objective? Some that you could consider would be buying to accumulate a portfolio of rental homes, buying to resell quickly for a profit, buying in anticipation of price appreciation.
• Specific amount of positive cash flow you want to accumulate in the first year or two years if your intention is to trade in & out of real estate
• Specific amount of net residual income you desire monthly if you’re assembling a real estate rental portfolio
• What amount of resources have you in terms of cash, credit and time

As you begin to think about these considerations, bear in mind that there’s a
way to achieve any outcome you desire given the knowledge that you’re willing to accumulate and the time and resources you’re willing to invest. For the remainder of this report, I’m going to assume that your objectives are to either create rental income or re-sell for a profit as my particular formula will work for either of these two objectives.

As an experienced real estate investor, I’ll submit for your consideration some additional criteria that I personally use to make sound real estate investments:

• Positive Cash Flow – I personally like my investments to cover all their own costs in addition to producing a profit every single month.
• Existing equity – I generally stick to properties that can be purchased for at least $25K less than their current market value.
• Appreciation potential – The property must be one that I believe has good potential for appreciation in the coming 3-5 years and beyond.
• Attractive financing terms – the financing terms must be attractive as a last consideration. This can take several forms: an owner financing deal or private capital financing option or a conventional long term low FIXED rate.

As you begin to look at the deals that are in your marketplace, it’s important
to realize that, if you follow my formula, you’re going to have to do a significant amount of due diligence and searching to come up with something. Believe me when I tell you though that if you follow this formula, you’ll wind up purchasing only winners. If you’re now thinking, “well how do I find a deal?” let me share a thought that I came across some time back. In taking down some advice from a very experienced real estate investor pertaining to how to find a good real estate investment, I wrote down “Look, look, look and search, search, search.” In short, people get paid for their knowledge and ability to take powerful action in the present moment. To begin, it would behoove you to start examining and getting a firm grasp on what the real estate market is like where you intend to begin your investment. How will you know a deal when you see one?? How will you know what you should take immediate action on to further your goals? The answer is you have to get intimate – intimate with your market that is. Once you have begun to get a feel for your market and you ‘look, look, look and search, search, search,’ you’ll start to find things that have possibility.

So as you’re looking and searching for deals, you’ll begin to notice that not all deals will fit all 4 of the ‘ideal criteria’ model. That’s ok, what you’ll want to begin doing is finding the right combination for you. My experience in working with many investors over the years and working on my own properties is that you need to have at least 3 of the 4 criteria depending on their relative attractiveness. The reality is, current positive cash flow is the most critical factor. It may even be prudent to evaluate the investment based on rents that are 10-20% LESS than current rents. If things still look good, then you likely have a winner.
Whatever the case is, it helps to have a written intention and plan against which you can compare and contrast deals that you find.

Eric Johnson – Expanse Financial, Inc. Mortgage Financing and consulting; 941.713.9307 Voice