What's going on everybody. In today's video, I'm going to be going over how to buy a rental
property, step-by-step. Right now, I own 17 units valued at about $4 million in the Washington,
DC market. So that's where I'm coming from with this advice because, as you know, sometimes
I'm on YouTube, I get some trolls here or there telling me I don't know what I'm talking about,
but that's where my advice is coming from. Now, there are people that own much more than me.
However, I've gotten to a point where my cash flow completely covers everything I need. It
covers my lifestyle, so technically, if I wanted to, I could retire from rental properties. I'm
going to tell you exactly how to purchase a good rental deal. Anyone can buy a rental property, but
I'm going to tell you exactly what you need to know in this 10-minute video.
So, number one, you need to pre-approved. I'd recommend a local lender, maybe reach out to
two or three recommended local lenders, and let them know that you're buying a rental property.
Sometimes you can do a house hack, which I actually would recommend, doing an FHA or VA loan,
using it as your principal residence for a year or two, and then moving out and moving to another
property. However, you need to save money for the down payment. Even if you do a VA or FHA,
FHA is 3.5% for the down payment, and then closing costs are usually another 2 to 3%. You
need to save as much money as possible when you're looking to buy a house. Maybe start 3,6, 12 months
before and start building up your cash reserves. If you're doing a conventional investment property
loan, the bank is actually going to require about 20 to 25% in terms of the amount of equity,
sometimes the down payment. If you can find a really good deal that has a ton of equity,
you would have to bring less to the table, but just plan on about 20 or 25% if you plan
on just doing a conventional rental property loan. In addition to saving up as much cash as possible,
you'll also need two years of tax returns. Most lenders are going to require a minimum of two
years tax returns. They're going to take an average of that to help you get qualified
for the property. The third thing you're going to need for your pre-approval is a good credit
score. Now with FHA, you can technically have a 500 credit score and still qualify. That's
the absolute minimum. You would have to put 10% down. However, you're going to get the
best rates and probably save hundreds of dollars every single month if you have at least a 700,
but better yet, if you could get about 750, 750 or above, you're going to get the best rates.
For the pre-approval, reach out to a few local lenders. Don't use some online discount lender.
They're going to offer you the world, but it's going to be a much more difficult transaction.
You want someone that you can text, someone that you can call. You don't want some 1-800
number in Fort Lauderdale or Phoenix or somewhere halfway across the country. Then you're going to
need your cash reserves and get your credit up as much as possible. Now, you need to find a deal.
There's really about five easy ways to find a deal. Now, what I would recommend for your rental
property is try to look for two to four unit properties. You want to get into multi-family.
Multi-family is much more scalable than single family. Two to four units, you can still qualify
for a residential loan. The first way is going to be using a website called PropStream. This is my
favorite real estate investment resource. I have an entire 10 or 15-minute video below that you
can watch after this video's over on how I find these off market deals. I do a lot of marketing
to multi-family owners, and you can call them, you can text them, you can send them direct mail,
you can camp out on their front lawn if you want. There's different ways of
contacting people. You can do whatever your preference is, but you want to contact them.
All of the 17 units that I've purchased have pretty much been off market. There was one
that was listed, and then temporarily off market, and that's how I purchased it, but
basically all of the properties that I purchase, for the most part, are off market.
I get them a lot through PropStream. I also do some networking, which we'll talk
about in a second, but great resource. The second way to find a rental property is
through the MLS, and you can set up keyword searches like 'as is', 'handyman special',
'fixer upper', 'investment', you have about 20 to 30 keywords where if someone lists a property with
one of those keywords, it will alert you, and you would have to go through your real estate agent.
I would highly recommend getting your real estate license because you will save a fortune, and as an
investor, you don't want to be bound to just one agent because another agent might have a good deal
or someone else might have a good deal. It's a lot of work sometimes to look for an investment deal,
so you don't want to be bound to one agent. It's also great because you can save a fortune when you
purchase a property. I just bought a four-unit property for 600K, and I got a 15K, basically,
commission from that because I'm a licensed agent. That basically paid all my closing cost.
If you're looking for an investor friendly brokerage definitely reach out to me in one
of the links below or on social media, and I'd love to talk with you, and we can ... I actually
work one-on-one with different agents that join my brokerage. It's a nationwide brokerage and
offers a lot of benefits to investors. If you have any interest, definitely reach out to me.
The third way to find deals is to get on different wholesalers' buyers lists. Every city's going to
have three or four or five big time wholesalers that might do 10, 20 off market deals per month,
and that's basically where you get those email blasts where they say 200K undervalue,
those types of things, but if you get on 20 or 30 of those lists, most of the deals are not
going to be that good, but you will, every now and then, come across some pretty good opportunities.
I have bought two deals recently from wholesalers where I get them 100K undervalue, both of them. If
they were listed on the market, they'd be listed for substantially more. If you're selective with
those, they can be a good opportunity. The fourth way to find a great deal
is to agents. For example, I was looking for a four unit deal in Washington, DC. I made a list
of about 50 different agents that had represented both buyers and sellers over the last two years,
and I said, look, if you come across any deal like this, just let me know.
Out of 50, I probably got 10 or 20 responses, and I got five or six people sending me deals,
and that's actually how I purchased one recently that appraised for 200K more than I purchased it
for. That's another reason why I love multi-family because there's less competition in that space.
Now the fifth way of finding deals is, it sounds kind of cheesy, but I've actually had some pretty
good opportunities here, is through Facebook groups. Every city's going to have some pretty
large investor Facebook groups, and you'll see deals on there. You'll see multi-family deals.
You'll see rental deals. You'll see people with ... Pretty good deals, not just like BS types
of deals, and it's just like anything, you need to look at 25 deals to find the one good one,
but there's going to be opportunities on there. As far as location goes, as far as
where you should be looking for your deals. I always recommend, if you're getting started,
you should probably start with something close by. It's just going to be easier to manage. You're
just new to the business. You don't want to ... I heard of one investor, his first deal was like
a 50 unit, halfway across the country, and he was like talking about how looking back,
he probably wouldn't have done that as his first deal. Really, that's a huge property take on,
and I would've ... Honestly, I would've loved to own a property like that, but for your first deal,
I would probably recommend starting a little bit smaller and probably a little bit closer to home.
You also want to get to know the areas. Read up as many articles as you can about the different
neighborhoods that you're looking at. You can honestly go to open houses and see what the comps
are. Once you see properties in-person and you see neighborhoods in-person, you get a much better
feel for it than if you're just looking online. There's going to be so many different things like,
oh, there's a stadium here, or there's the Metro here, or there's a big, giant power plant
there. You just have a different feeling once you actually see it in person. Even if it's properties
that you wouldn't be interested in, whether it's too high for you or too low for you, it's good
to get more reference experiences and actually get out there and see these houses in person.
One thing I would add to that is I would be very careful with super low end areas. I remember,
10 or 15 years ago, when I was first getting started, I only had a couple thousand dollars,
and I could buy houses in Baltimore for 5,000, like an entire house in Baltimore for $5,000,
and I don't even know how that's even possible to begin with, but looking back if I had bought that
house, it would've been like an hour from where I live, and the value today might be like 10,000.
Some of these areas, they don't go up very much at all. I would try to find an up and coming area,
but not a completely ... I don't know what the proper word is, but like you could go to Detroit
or parts of Baltimore, you could buy 20 houses, it would cost you a hundred grand, but they're just
going to be management nightmares, and they're probably not going to appreciate in value.
After you've gotten your approval and you're starting to look for deals, the biggest
thing I can tell you is to just look at at least 25 deals before you buy one because one
of the mistakes I made when I was first getting started is I looked at like two or three deals,
and then I bought one. However, if I had been more strategic and more patient,
some people even say the rule of a hundred, where you look at a hundred deals and then
you purchase one. I would say at least 25 because out of 25, you're going to see some
extremely overpriced deals, and then you're going to probably see a few that are pretty
good opportunities, and one of them could be a great deal. Make sure you look at at least 25.
Some people will even have a little spreadsheet where they kind of have some basic information
on each one and maybe do a ranking system, but I would say also, when you're looking at
these deals, there's a couple things I look for. Number one, I like to be at least at the 1% rule,
meaning if you buy a property for 300,000, the gross rental income is going to be at least 3,000,
and that could be hard to ... I'm in an expensive city, in Washington DC, and I'm still able to find
deals that come close to this or sometimes are even better than that. Then you'll also want to
use some type of deal analysis calculator, and if you want the rental investment calculator I use,
you can download it in one of the links below, but that'll give you a better idea of exactly the
numbers on the deal. One thing to add about the 1% rule, there's different scenarios. You don't
always want it to be just black and white. You want to have a little bit of a gray area. I just
purchased a deal, actually that four unit, it was like 200K undervalue, but it barely breaks even,
it barely like cash flows. Now there's potential for me to increase the cash flow,
thereby increasing the value, but for me I'm like, okay, yeah, I'll buy a property that's
200K undervalue. It's not going to pay for a new car payment or vacations and stuff like that,
but maybe when I sell it down the road, maybe I'll 10-31 it and sell it for a
bigger property, tax free and go from there. The ways that I check the rental rates in my area,
I like to use Craigslist as a good, basic rule of thumb. You can kind of get a median average,
and then I do a lot of section eight. So I just look at the section eight rental rates and I say,
okay, in this neighborhood, I know exactly what I can get. It's going to be 1500 a month for a two
bedroom or whatever it might be. Then as far as expenses, vacancies, property management,
that type of thing goes, some people budget up to like 50% of the gross monthly income. That's
a pretty conservative number, if you manage it yourself and whatnot, you might be able to get
a little bit better, but that's a good way to be conservative and not lose money on a deal.
Let's say you've evaluated your 25, 50 deals, and you're making offers. You got to understand
not every offer is going to get accepted. Sometimes I might make five or 10 offers
before one gets accepted, but the thing to know with good deals, if it's a really good deal,
those deals do not last very long. If it's a motivated seller, it might only last 24 to 48
hours. So when you make your offer, whether it's with a real estate agent, or if you're just making
an offer like off market, and you can download my contract that I use for off market deals below,
and I'm not an attorney, you want to make it fast and easy for the seller. I tell the seller, I say,
look, it'll be no commissions, hassle free, we'll close in 30 days or less. Once you put
too many contingencies in there, if it's a really good deal, the seller might get a little nervous.
With my offers, I also like to come in about 10 to 15% under what I could actually pay. If I can
pay 400K for a house, obviously I'm not starting at 400K. I'm going to come in a little bit lower,
and sometimes you'll get deals that way. Next step, we have inspections. A lot of times,
pretty much all the 17 units I bought, except for one, I didn't do any inspection. I just bought it
at such a low price where if the whole house needed to be gutted, I would still make a very
good profit. That's kind of what my mindset when I'm making offers. However, if it's a property
on the MLS and maybe there was no other offers, sometimes you can keep an inspection contingency
in there. In my area, sometimes we'll see five day, void only inspections, or sometimes it'll
be a full inspection. With inspections, if you are able to do it, that's really only for properties
that are on the MLS, or if it's off market, you definitely want to walk through the property,
and if there's something concerning, like structural issues, obviously get a second
opinion on it. But let's say you were able to keep your inspection contingency. They
do a full report. I'm sure they're going to find some things, always ask for a credit. I've always
had issues when people ask for repairs because it's not really done to the buyers standards.
The seller might choose the cheapest people. It's so much easier just to get a pretty generous
credit towards your closing costs or the repairs. During that inspection time, you also want to
verify that the tenants have been paid rent. If you're buying a property with existing tenants
in there, it's okay to see the lease, but you also want to see the bank statements and say,
okay, these people have been paid. You want to see, April 1st, they paid 1100, May 1st,
they paid 1100. You want to actually verify that they've been making the payments because sometimes
they might be paying a little late or not at all. Ask me how I know.
After you've gone through inspections and everything's good, verified information,
you need to obviously get to closing. So that's working with your lender, and that's why,
with rental properties and sometimes if it's a distressed listing, it's going to be much
easier if you have a local lender or a local hard money lender if you're doing that. A lot of
the properties I've purchased were actually hard money. They were local people so they understood
the market. They were flexible. I could reach out to them if there's different issues. We
could easily sort that out. Sometimes these online discount lenders, they'll promise you the world,
but then ... I've seen it happen numerous times and you think just getting a loan would just
be like, here's the price, everything's good, let's just get to closing. They will delay it
weeks, sometimes two or three weeks, and sometimes credit unions can be the same way.
I even had a deal one time where it was like the night before closing, and I got an email
from the lender saying, hey, we need to talk, this isn't going through tomorrow. I could have
lost my earnest money deposit because I chose a lender that I hadn't used before. You need to
be very ... Qualify your lenders, make sure they have great reviews. Make sure they come reviewed.
You can look in Facebook groups or ask different investors, hey, who's a good, hard money lender.
Who is a good lender for this type of deal? Something to keep in mind is that you also
need to stay on top of your lender because a lot of lenders, if they're good, they might have a
lot of deals going on every single month. You need to really be proactive and make sure they
have everything they need, double check on stuff. Maybe check in with them every few days, just to
make sure that everything's good because people get busy, people forget things. So make sure to
stay on top of them. When it comes to the actual closing, keep in mind that you'll need to bring,
usually 2 to 3% in closing costs in addition to your down payment. Your lender should give you all
this information up front and tell you how much you need to bring, but just keep in mind there's
the down payment as well as the closing costs. Assuming everything goes well with your closing.
Now you need to actually rent the property out. A lot of times you're going to have
to do some renovations. Sometimes it might be major. Sometimes it might be more minor stuff,
but the best way to find contractors, I've found is real estate investing Facebook groups. Every
city's going to have several of those. You type in bathroom, kitchen floors, you'll find three or
four people. Also, angie.com is great because you can see like a lot of reviews from people
that have used different services, whether it's landscaping, roofing, whatever it is, you can do
a quick search of that. Also if you drive around in different neighborhoods, you'll see signs of
different contractors, and you can give them a call, make sure they're licensed and insured and
that type of thing, but that's a great way to find some really good, qualified contractors.
The biggest thing I could tell you when working with contractors is just make sure your scope
of work is super specific. If you don't have a lot of real estate investment experience,
don't buy a complete gut renovation. Start with something smaller, more manageable, and
work your way up to that, but just make sure ... Show pictures, you can have SKU numbers.
Make sure it's exactly what you're looking for because if you just tell a contractor, hey,
renovate the bathroom, they can choose the cheapest stuff from Home Depot for all you know.
You really got to be specific. Then after you've fixed up your property,
you're ready to rent it out. Make sure you take professional photos and get it listed.
for sure on the MLS, I would recommend listing it yourself if you're a real estate agent,
or you can find a new real estate agent that would be willing to do a rental. They can list it, but
make sure you get professional photos. That's going to go a long ways. Then also
list it on sites like Zillow, apartments.com, try to find every single site. A lot of times
you can sync them to a hundred different sites out there, but make sure they're on
every single platform because some people only use Zillow or only check the MLS or only use RedFin.
So make sure to get it out there everywhere. If I were to go back in time 10 years ago to my
start of my real estate investing career, what I would've done with my rental properties,
I would've started with multi-units. I would've started with two to four units and then what I
would've done is I would've fixed them up a little bit, increase the rents, increase the value,
and then sell them via a 10-31 tax free exchange and then put the proceeds of
those sales into bigger units, like 20, 40, 50 units because with rental properties you can buy
50 single family rentals if you want, but that's going to be a lot of management. That's going to
be a lot of headache. It's much better and much more scalable and much more profitable
to go after the multi-family deals. Once you do a two to four unit,
you'll be comfortable doing an eight unit 16 unit. And then from that point on
you'll probably never go back down again. You're probably only going to ... There are some people
where they only look at 50-unit or more apartment buildings. That's actually the point I'm trying to
get to is really to a point where I'm only looking at large scale apartment buildings
because they're much more profitable, easier to manage than driving around town worrying
about 50 different single family rentals. Right now, I have five multi-family rentals.
I'm looking for more, if you know of any good multi-family properties nationwide,
let me know. If you're also looking for a one-on-one real estate mentor,
I do some one-on-one mentorships with different people, different investors across the US.
Definitely reach out to me in one of the links below or on social media, and I'd love to have a
quick chat and see if it'd be a good fit. Thanks for watching, and I'll see you on the next.