Last Updated on: 29th January 2023, 05:53 am
Looking for and choosing the right property as your first investment is a hard process and can be very confusing. No worries, that hard process of knowing how to find and buy your first house will be a lot easier after you’ve finished reading this post.
To begin with, let’s start with the basic questions.
How to find a house?
There is no easy way to find a house other than to get in touch with the local real estate agent available in your area. A real estate agent can help set you up with the property search around the area you wanted to buy property in.
The other option would be to join a local Facebook group or any other online community relative to real estate and real estate investing. These groups often bring together real estate professionals, investors and contractors, providing an opportunity for networking and finding potential partners for your real estate business. Start to engage and reach out to the members to begin building relationships.
Now, before anything else, let’s just first discuss a couple of things we need to keep in mind before proceeding to buy that first rental property. We’ve listed all of them so you don’t have to.
Things to be aware of when buying your first rental property:
- Know what you think the property is worth after fixed up: To get this information, you will need to run comparable sales through an MLS. You can get this information yourself if you’re a licensed agent but if not you can just have a real estate agent look it up for you.
- Buy a property at 75% worth of estimated fixed-up value minus its ARV (after repair value) cost: So, if the value of the property is $100K fixed up, and $75k is its 75%, you will then have to deduct from it what the total cost of the repair would be. Let’s say that your repair cost would be around $20k, so that would be $75k-$20k is $55k. Buy the property at $55k. This leaves you with $25k equity. You can then take this property to a bank for a refinance loan if you ever decide to buy another property as another investment. The bank will look at the value of your property and will usually give you a 75-80% loan check out from the total value of the property.
- Figure out how much the property is going to rent for: When it comes to how much the property rents, we recommend using Zillow to get a reliable estimate rate. Take note that you’re not going to pocket 100% of the rental payment that you will be getting from your tenant. That is because there are a few expenses that need to be accounted for.
However, If you used your own money to buy a property and not from a loan, then you would obviously pocket a lot more from what’s left of your tenant’s rent simply because you would have no monthly mortgage payment to a bank.
What expenses will you have to pay monthly for your rental property?
- Vacancy rate
- Property management
- Mortgage Payment
After everything is accounted for, make sure that you are at least left with a $200 cash flow every month. In some cases, it might a little more or less than $200 depending on the market.
If you want to know more in detail about how these rental property expenses work, do check out our separate post.
Now that you have a bit of an idea of how the buying of rental property works, let’s move on to how you can afford the purchase. And for this one, let’s assume that you’re taking a loan from the bank for your first house purchase.
The question now will be…
How do I get approved for a mortgage loan to buy a house?
Here are some of the qualifications required to apply for a mortgage loan:
- You need a job: As much as you may hate it or as much as you may be looking at the passive income of real estate investment so you can avoid a 9-5, you still have to have a job. This one is very crucial, why? Because how are you going to qualify for a loan to buy a property if you can’t prove to a lender or to a bank that you can pay them back That said, there should be no debate on this first part. Get a job and keep it.
- Develop your credit score: If you don’t have a developed credit score it’s going to be incredibly difficult for you to actually prove to a lender that you’re capable of paying back a loan. They’re not gonna want to give you a loan unless you have an established credit history. Now, get yourself a credit card and start making smart purchases on it.
- Save for a 3.5 % downpayment on your FHA loan: Let’s say you found a $100K property and you wanted to take a loan for that exact amount. You’d then need to make a 3.5% downpayment to the bank for that loan. 3.5 % of $100k is $3,500. Once the downpayment was made, only then the $100k loan will be released. This will leave you with a $96,500 balance plus whatever interest your bank charges. That said, make sure you have money saved up ahead of time so that you’re not gonna be short to buy your property.
Assuming all financial and employment factors are in order, including a good credit score, stable income, and a sufficient down payment, the next step in the process of purchasing a property would be to carefully consider one’s motivation and goals for entering the real estate market. It’s important to have a clear understanding of what your objectives are and the commitment required to successfully make better decisions when investing
Also, remember that knowledge is power, so it’s always gonna be worth taking the time to learn these things. Learn in however ways is effective for you, whether that be through books, audio devices, videos, social media, etc.