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How to Buy an Investment Property

Updated: Aug 17

If you're interested in real estate investing, follow these steps on how to buy an investment property.


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You're interested in purchasing investment property to build wealth, but you're unsure of where to start. Though the process sounds very similar to buying your primary residence, the one key difference is the real estate investment analysis. This analysis will help you determine what property is the right one to invest in. All of the other steps in the process pretty much mirrors buying a primary residence. Let's take a look:


Step 1. Know how much you can afford


This is everyone's first step. You most likely have a certain amount in your bank account and you're looking to invest it. Be on the safe side of the assumptions. Depending on the investment property, it might need renovation work done, which would take away from your reserves and from the amount you can use towards a down payment. If you plan on being safe and putting 20% down, that's great. If you can't afford to do 20% down, but still want to purchase an investment property, the best way to do so is by living there. When a property is owner occupied, there is more flexibility in the types of loans out there and the % down payment needed.


Step 2. Get preapproval and research the areas you want to invest in


The reason I put preapproval before you find the property is due to the market conditions. Right now, April 2022, it is truly a seller's market. Properties don't stay on the market long, so you don't want preapproval to be the reason why you couldn't make the purchase. It's better to get the preapproval upfront - it does last 90 days after you receive it so you do have some time to find a property. Now is where the research comes into play. Look around everywhere, what neighborhoods do you want to buy in? What types of homes? What towns have a high percentage of people who rent vs buy? This is also the time when you enlist a realtor's help if needed.


If you need help deciding whether a property will generate the cash flow you want, purchase my Rental Property Investment Analysis Calculator below:


Step 3. Analyze whether the property is profitable


This is the most important step. Let's say you found 4-5 viable options as an investment property. The next step would be to calculate the ROI of each property. This can be tricky if you don't already have a formula or spreadsheet that calculates this for you. Luckily, I just launched one in my shop and it's an easy tool to use. If you're serious about purchasing property, I highly recommend purchasing this spreadsheet to help you determine your potential ROI on each property. After going through the exercise for each property, you will have a better idea of what would generate the best ROI and what properties you should really go after.


Step 4. Submit an offer


Finally, you work on submitting an offer. Now, depending on the market, offers may look different. In a seller's market, if you love a property and absolutely need to have it, you may end up going over the list price and need to waive appraisal and possibly inspection with a promise of a 30 day close to win the bid. In a buyer's market, you have much more negotiating power and you could bargain a bit more on the price. Your realtor will help you craft the offer that will be attractive to the seller. Make sure you work closely with him/her on this.

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