12 Simple Steps To Get Your First Rental Property

by James on 03/19/2010

Image of houses sitting on a stack of one hundred dollar bills

Now is the time to start picking up rental properties! There are plenty of great deals out there with all the new foreclosures popping up each week. The following is a simple guide for getting your first rental property. Simple does not mean easy. What it does mean though is that it doesn’t take a rocket scientist to do this and do it well. I have met so many people, just like us, that have been very successful with real estate. So why not you and me? Let’s get started!

1. Get pre-approved. The very first step is to get pre-approved for a loan. If you don’t do this, real estate agents probably won’t take you seriously. Plus, when you find your first deal, you won’t be ready to pull the trigger without a pre-approval letter!

2. Find knowledgeable agents. Most of us have full-time jobs. We simply don’t have time to do a lot of searching for properties. So, how then do we find properties? We need to find agents who have solid experience and are willing to contact us the moment they find any properties that meet our criteria. The only way to do this is to develop a relationship with an agent. Call a handful of them. Tell them you are an investor searching for foreclosures to repair and then rent. Keep in touch with them without being a pest. Hopefully, at least one of them will start thinking about you when a property comes available. For Houston, Texas, a good resource is HAR.com.

3. Take a look at the numbers. Once you have a prospective property, there is still no need to visit it yet! Smart investors take a look at the numbers first to see if the property will work. Calculate sales and rental comparisons of the neighborhood. Estimate repair costs from the pictures of the property and get help from your real estate agent. Once you know this information, you can have a pretty solid idea of whether it is a good deal. Never move forward with a property if it isn’t showing positive cash flow.

4. Visit the property. If the numbers looked good, go take a look at the property. See if your estimated repair costs were accurate. This is when having an experienced agent will pay off. Don’t forget to take a look at the neighborhood. If you see any “For Rent” signs, call and find out how much they are asking. General specs on a good single-family home for renting are 3 bedrooms, 2 bathrooms, 2-car garage and less than 2000 square feet. There are more people looking to rent this type of home and repair costs are lower for smaller homes. Purchase price depends on where the property is located. Currently here is Houston, Texas, getting properties at 50-70 cents on the dollar is a good range to shoot for.

5. Submit an offer. If your numbers still look good after viewing the property, it is time to submit an offer. Don’t freeze up with fear at this point! You’ll still have time to back out without losing any money even if your offer is accepted (you may lose your earnest money if the property is a HUD home). Just make sure that your agent includes a clause that allows you an option period of at least 5 business days to perform your due diligence.

6. Inspection. If your offer is accepted, it is time to perform your due diligence! Hire a qualified inspector to evaluate the property. This is a critical step. The last thing you want is to find a major defect in a property after you own it!

7. Get repair bids. If the inspection doesn’t turn up any major defects that you weren’t already aware of, it is time to call up a bunch of vendors to get estimates on all the repair costs. Don’t be shy. Get at least 3 bids per repair job. This is a lot of calling, but it is so important. Accurate repair estimates are necessary to ensure the house is a good deal.

8. Terminate contract or continue. If the repair costs are much higher than you expected, it is time to terminate the contract. Your only financial loss was the inspection cost. If the numbers still look good, congratulations! Looks like you just got property number 1! Also, let the vendors you decide to use know that you are closing on the property so that a scheduled start date for repair work can be set.

9. Close on the property. Time to head to the title company to sign all the paperwork. This is an easy step, but I know you’ll be feeling some anxiety about the repairing the house and renting it. DO NOT, I repeat do not start any repair work on the house until you own the property.

10. Start rehab. If you don’t have any experience, please don’t try to repair the house yourself. You’ll probably end up going over budget and way over your deadline. Get professionals to do the work. The most important thing is to get the repair work completed so that you can get tenants paying your mortgage. And, don’t go overboard! This is not a house you’ll be living in. Make the house “clean and functional” only. No high end upgrades.

11. Market your property. Potential tenants need to know your house is available for rent! Put up a large sign in the front yard with your phone number. Place an ad in a local newsletter. (Use the Greensheet for many Texas cities). Call Remax. At the moment, they are offering free advertising of properties for all landlords.

12. Credit and background checks. Your tenants can literally make or break you. In order to give yourself the highest probability of finding good ones, you must do some due diligence. Complete a credit check and a criminal history check of every applicant. Find out their rental history. And, verify their income. If someone doesn’t want to have these checks completed and offers up a wad of cash instead, run the opposite direction. Their are companies that do all these checks for you with a minimal cost that you can pass to the potential tenants in the form of an application fee.

Hopefully, this guide will help you get started. Of course, this guide could be 10 times as long if I filled in all the details, but these are the major steps involved in purchasing a single-family property. Feel free to ask me any questions that you may have. I will do my best to answer them or point you in the right direction.

Related posts:

  1. Progress Update: Closed On First Rental Property
  2. How To Keep Your Tenants From Destroying Your Property
  3. Video: Before/After Repair Walk-through of First Rental Property
  4. Top 3 Ways To Avoid Terrible Tenants
  5. 5 Amazing Ways That Real Estate Can Make You Wealthy

{ 2 comments… read them below or add one }

equifax credit score now 03/08/2012 at 12:01 pm

These days of austerity along with relative stress about taking on debt, some people balk up against the idea of having a credit card to make purchase of merchandise or even pay for a vacation, preferring, instead to rely on the particular tried and also trusted method of making payment – hard cash. However, if you possess the cash on hand to make the purchase entirely, then, paradoxically, that is the best time just to be able to use the credit cards for several factors.

James 08/19/2012 at 6:57 am

@equifax

Great point. It is true that keeping as much cash on-hand as possible is the better approach. If an investor has 100k and invests all of it in one rental property, that is a lot of cash that is tied up. One of the amazing benefits of investing in real estate is that banks are willing to loan 70-80% or more of the total price allowing an investor to buy more properties and increase their return on investment. It is also true that in some circumstances (when credit card interest rates are very low), using a credit card could prove to be a viable option, although, I would advise a new investor to avoid this approach.

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