First Rental Property

The beginning of the calendar year is always a time of reflection for a lot of people. It is a time where, people set goals that they would like to achieve in the coming year. These goals may be goals that someone wants to achieve in a number of areas of their life. Goals can apply to such areas as relationships, health, finances, or your career.

As a real estate investor, you should also have very specific goals that you want to achieve in the upcoming year. Goal setting is very important because it gives you something to aim for.

Many experienced real estate investors often have multiple goals with regards to their real estate investing career. In addition, goal setting is especially important for people who are looking to buy their first rental property.

If you are new to the real estate investing game, and you have not purchased your first rental property yet. Here are some action steps that you need to take:

1. Write your business plan

This is the most important thing that you need to do. A business plan is essential to a real estate investor. I suggest that you start simple, and write out specifically what you are trying to accomplish with real estate investment.

2. Write your mission statement

Just like how major companies have mission statements, write out your own personal mission statement. This action will help clarify to you why exactly you are getting involved with real estate investment. Once you complete this task, you may be surprised as to what your inner motivations are.

3. How many properties do you plan on purchasing

It is imperative that you write down how many rental properties you are planning on purchasing. This is important to ‘commit to paper’ as this simple act will cause you to stay focused and committed to achieving what you have set out in writing.

It is important to note that the timeline in business plans can vary in length. For instance, a business plans can be written taking into account the next 5 years, or it can be written taking into account the next 10 years. To new real estate investors just starting out, I recommend that you begin by writing your business plan over 1 year at least. What this means is that you are writing down all of your goals with regards to real estate investing over the next 1 calendar year.

4. Where are you going to get your financing from?

As part of the business plan, it is important that you document where exactly you are going to get the financing to purchase the properties that you have committed to purchasing. This is important, because by planning exactly where you are going to acquire the financing, allows you to have a game plan moving forward. To take a simple example, let’s assume that you have decided that over the next one year you are going to buy one rental property. At this point in time, you do not know where you are going to obtain the money to purchase said rental property. As such, in your business plan, you need to write down specifically where you are going to obtain the money. As a result, you would have to write down that you are planning on purchasing one rental property over the next year, and that you would be partnering with a joint venture partner who would provide the funds required to purchase the rental property

As another example, let’s assume that you have a goal of purchasing 2 rental properties over the next calendar year. You know that you have enough personal savings to purchase one rental property, however, for the second property, you are not sure where you are going to get the financing. In this scenario, you would write down in your business plan the follow:

“I will purchase one rental property this year, and will utilize my own personal funds in order to make the down payment. I have X amount of funds saved, and all of these funds will be used towards the down payment.”

Further, you may also write down in your business plan the following:

“I will purchase a second rental property this year, by partnering with a joint venture partner. The joint venture partner will provide the funds required for the down payment, and I will do all of the work required in purchasing the property, negotiating the sale price, overseeing any repairs and maintenance, finding tenants, maintaining the ongoing relationship with the tenants, and I will also oversee the eventual sale of the property at the end of the holding term. The joint venture partner and I will split the cash flow on the property 50/50 and I will distribute the returns to my joint venture partner on our agreed upon intervals. Upon the eventual sale of the property, the joint venture partner will receive all of her initial funds and then the profits will be distributed 50/50 to the joint venture partner, and myself.

The more detail that you have in your business plan the better. A business plan is like having a road map. You begin at point A, and you need to plan your route so that you can eventually get to point B. Point A is a position where you don’t own any rental properties and point B is a position in which you finally own a rental property or properties.

More often than not, when the calendar year is coming to a close, we think ahead to the next year, and all of the goals that we want to achieve during the following year.

Why not take some time between Christmas and New Years day to establish some goals to achieve before the end of the current year?

This essentially will give you 7 days, December 25th through December 31st, in order to set some goals and take action on achieving these goals.

If you are looking to purchase your first rental property, there are a few key goals that you can establish and achieve before years end. Here they are:

1) Determine what area you are going to invest in

If you have already started your research as to what geographical areas you want to invest in, now is the time to make up your mind. Pick an area that has strong economic fundamentals and stick to that area. Don’t flip flop with your decision. When I was first determining what geographical area I was going to invest in, I did a lot of flip-flopping myself. I had about 3 different cities that I was looking at where I wanted to buy a rental property. One day, I finally made up my mind, and stuck to my decision. This is important to do. Make up your mind and stick to that area if it a strong city or town with solid economic fundamentals.

2) Determine where you are going to obtain your financing

For the financing on your rental property, you are either going to get your mortgage from a bank or through a mortgage broker. If you are opting to go through a bank, pick the particular bank that you are going to deal with, identify what branch or location you will visit. Furthermore, if you can establish who at your branch location will be taking your mortgage application, even better. Once all of this is determined, you have a definite plan of attack and you know what your next steps are.
If you are using a mortgage broker for your financing, finally pick which mortgage broker you are going to use, if you have not done so already. If you do not know a mortgage broker, talk to a friend or family member that may know one. Here, I highly recommend that you use a mortgage broker who is knowledgeable in working with real estate investors. Not all mortgage brokers are created equally, as some are much more knowledgeable than others.

3) Determine where your down payment is going to come from

Know for certain where your down payment is coming from for your rental property purchase. If your down payment is coming from a Line of Credit, great. If you are speaking to potential joint venture partners over the holiday season, and you know that they are going to be the money partner who are going to provide the funds, excellent. If you are using your own personal savings, good for you. The point here is to have this planed and mapped out. You have to be crystal clear as to where the funds for your down payment are coming from. When you are crystal clear, you have a clear action plan and can move forward to achieving your goal.

4) Determine how you are going to find a rental property

If you do not have an existing relationship with a Realtor, now is the time to forge one. Since many people and Realtors are off on vacation between Christmas and New Years, perhaps you won’t be able to get in touch with some Realtors. This is okay, as you just need to have a clear sense of which Realtor you are going to work with to find a rental property. If need be, contact them when they are back from vacation. However, also note that a lot of realtors do not take vacation during the final week of the year. Now could be a very good time to contact them. If you do not know any realtors who are experienced in working with investors, you can ask family or friends if they know any that they would recommend. If this doesn’t work, I recommend the following strategy. You can call the Broker of Record or the Broker Owner of a real estate company, and have them refer you a realtor who has experience working with real estate investors. To get in touch with these Brokers, you simply just need to call into the real estate company that you are dealing with, and ask to speak to the these specific Brokers. This is a good strategy that I have used before. The Broker Owner or the Broker of Record should have a vested interest in referring you the appropriate Realtor. This is because if the Realtor that is referred to you eventually succeeds in finding you a rental property that you purchase, the real estate company, namely the Broker Owner and Broker of Record win as well.

5) Establish a time frame for your purchase

This last point is an important one. Establish when you are going to purchase the rental property. Be as specific as you can. The more specific you are, the more likely you are to follow through with this goal. For instance, you can tell yourself that you will be putting in an offer on the rental property on January 15th of the following year. This goal setting of determining an actual purchase date is a very powerful practice. Using this method can actually force you into taking action.