Start Buying Rental Property with this 5-Step Process

Buying rental assets can be time consuming. I literally analyzed 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 purchasing rental property is definitely a "numbers game."

If you're very new to all of this, you're probably wondering how to jump 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-by's + 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 brought toghether right out of the gate. You will gradually assemble it as you go.

STEP #2: PRACTICE RUNNING THE NUMBERS

Ask your new realtor to send you all the active 2-8 unit multifamily rental property listings in your target area, and practice running the numbers to identify the most beneficial ones. As long as you know a simple formula and have a few key numbers from the property, can use those numbers to do rapid-fire "back of the envelope" calculations to quickly screen properties for financial feasibility. Read my property valuation article to learn how to do this.

STEP #3: CONDUCT PHYSICAL INSPECTIONS

Once you have a short list of financially viable multifamily rental properties, take some time to do drive-by's. Whether the numbers work or not, you do not want to get 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 realtor schedule weekly showings, and bring a notebook to jot down notes so you can later use this info to adjust your bid amount.

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 buildings 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-by's, and physically inspected a bunch of hot prospects with your agent. Finally, you've found a 2-8 unit multifamily investment 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!


To learn more about Al-Yassa's investing strategies visit http://MogulsinRealEstate.com
or visit his blog.blog

Al-Yassa Al-Mahi's real estate education started in 1988 when his mother bought her first rental property. After buying his first property from his mother in 1997, he quickly acquired more property in the Washington DC Metro area, as well as Baltimore and Philadelphia.

Al-Yassa currently instructs private clients on how to acquire and manage Business Credit to fund their real estate deals, developing land projects in Pennsylvania with partners, and has become one of the first persons in the country to be awarded the designation of CLO (Certified Lodging Owner) by the American Hotel & Lodging Association.