REAL ESTATE INVESTING ADVENTURES OF A 1ST TIME LANDLORD CHAPTER 2: HOW WE FOUND AND BOUGHT OUR FIRST INVESTMENT PROPERTY
Incase this is your first time to the Net Worth Revolution, welcome to the movement! We hope this post inspires and helps you with your first investment property purchase. Remember, nothing in your life will ever change if you do not take action.
FINDING AN INVESTMENT PROPERTY IN A TOUGH MARKET
It is no secret that we think real estate investing is a key tool for wealth development. This belief is why we purchased our first investment property. Whether you are a new or seasoned investor, you have probably figured out it is hard to find a good deal right now. The real estate market is booming. Investment properties can have 20 offers the first day they are on the market. But remember, just because you find a deal does not make it a good one.
There are several factors that go into figuring out if an investment property is a good deal or not. The first rule that we follow is the 1% rule. What is the 1% rule? Simply put, it is the monthly rents percentage of the purchase price. If the investment property you are looking at costs $100,000, then you would want the rent to be at least $1,000 per month. This is just one of many things to consider when looking for a property to purchase. This article is about how we found and purchased our property…. We will cover the tools/numbers we use to determine if a property is a good buy or not in a future post.
HOW WE FOUND AN OFF MARKET INVESTMENT PROPERY
Like most areas in the country we are in a very competitive market. The unemployment rate in our area is well below the National Average. Homes that are priced between $120k-$220k have 20 plus offers within 24 hours of listing. Multifamily investment properties (if they hit market) receive just as many offers. Many of those offers are cash offers. Seeing we were looking for our first investment property with having a low net worth, an all cash offer was not an option for us.
With a cash offer not being an option for a property listed on the MLS, we tried a different approach. Before I go on, we did not come up with this approach. We found it on Bigger Pockets. If you have not heard of Bigger Pockets, I strongly suggest you check out their forum and podcasts. Without the Bigger Pockets community, we would have never found our first property. Also, remember taking action is the #1 thing we contribute to success here at Net Worth Revolution. That is why we are sharing our story. If we can do it, so can you!
DRVING FOR DOLLARS
Driving for Dollars? What is that? Well… To keep it simple, you get in your car, drive around, and look for houses you like. That is as simple as I can put it. After a lot of research, I decided that the first investment property we would buy was going to be a multi-family unit. Duplex, triplex, quad-plex, and apartment complexes fall into the multi-family category. Deciding on multi-family is a topic for another post so stay tuned for that.
The area we live in has great public schools, low unemployment, and few rentals. All of these qualities make it a great place to start investing in. There are a lot of duplexes but it had been years since one went on the market. So driving for dollars was one of the only ways of ever having a chance to buy one. So one weekend, I hoped in the ol’ Subaru with a pad of paper and three red bulls. Essentially, I drove around and anytime I saw a multi-family property I wrote the address down and went on to the next one.
I HAVE A LIST OF ADDRESSES, NOW WHAT?
Much to my surprise, there were way more units that I realized. With the list of addresses in hand I logged onto my laptop and went to Google. I searched for my townships website and found the property search feature. I entered in each address one-by-one and found who owned the property and what the owners mailing address was. BOOM!!That was the hardest part of the entire experience. Now I had a mailing list of rental properties, who owned them, and their addresses.
The next step I took was writing a letter to let the owners know I was interested in purchasing their property. Here is the letter I sent.
Feel free to use this letter if you like. It is just an example. You can use whatever method you want!
WE GOT A RESPONSE. WHAT DID WE DO NEXT?
The letters were mailed on a Monday. The Wednesday of that week we got our first response! The owner of the rental property was days away from listing it on the MLS. After a bit of phone tag we met at the property and did a walk through. Everything looked solid. One unit was empty (perfect for FHA) and the other units rent was well below market rate. I asked him if we could have a few days to think about it and he said “Nope. You have until tomorrow afternoon.”
We ran the numbers and everything fit. Check out the rental property calculator BiggerPockets.com to see if you have a deal or not. I will also cover everything we looked at in future posts.
With all of the numbers making sense, we did what you must do to succeed. WE TOOK ACTION. We called a local mortgage broker and got pre-qualified for a loan. The loan amount we qualified for was well above the agreed upon purchase price. That night we called, signed the purchase agreement, and started the buying process.
WHAT TYPE OF MORTGAGE DID WE CHOOSE?
To maximize our ROI (return on investment) and to get in with a low down payment, we chose a FHA loan. This type of financing required a 3.5% down payment and that you live in one unit for 12 months. **Remember you may only have one FHA loan at a time within a 100 mile radius. PMI only goes away once you refinance into a conventional loan. This loan type is not for everyone. I am not endorsing it or condoning it. I am simple giving you the details on how we found and purchased our first investment property.
GETTING OFF MY ASS WORKED
Within 45 days of simply taking action and driving for dollars, we took possession of our first rental property! Why the hell did I wait so long? What was I afraid of? What are you waiting for? If you have read any of our posts, you know we believe taking action is one of the biggest contributors to success. Think about it, within 45 days of taking action we owned an investment property that cash flowed. That was not luck. Nothing would have happened if we did nothing.
This post was the simplified version of everything that transpired.
A BIG THANK YOU TO YOU
Thank you for reading this post! I truly hope it helps. Once again don’t hesitate to reach out to us using the contact form with any questions. If you think this post could inspire someone you know, please share it. We have also started a series called Real Estate Investing Adventures of a First Time Landlord which this post is a part of. Feel free to check it out and have a laugh. Until next time, take action everyday!