When it comes to your first foray into the real estate market, there is much to consider and many questions you should be asking.
You want to base your decisions on good, solid, actionable information that you can put to use in buying your first income generating property.
Let’s have a look at some of this knowledge.
Capital Accumulation and Managing Your Credit Score
For the first time property investor, there are two critical areas that you should be focusing on in the weeks, months or even years leading up to your first purchase.
These are capital accumulation and managing your credit score.
The simple truth of the matter is, you’re going to need about $20,000 in cash for a down payment on your first property.
While some markets (Memphis and Indianapolis are two current examples) might have cheap enough deals that you could get in for half that, the bottom line is, in today’s market you need 20% of the total purchase price as a down payment.
The rest is going to be financed, which is why you must guard your credit score very carefully.
Consider this to be THE critical component in convincing a lender to loan you the other 80% of the property price.
Choosing Your Income Property
Once you have saved enough for your down payment and your credit score has been carefully managed, the next step is to begin screening and selecting your first income property.
The smartest way to approach this is to use the services of a trusted and experienced investment counsellor.
They will help you identify appropriate markets for your specific needs.
When looking to make your choice of counsellor, remember to look for advisors that buy for themselves what they sell.
The old adage of putting their money where their mouth is rings true in this case.
You want to pay for results, not simply for advice.
Additionally, the most important thing to remember is be a direct investor. That means you need to personally control your own portfolio and assets.
Don’t put it in the hands of a middleman that could lead you astray.
Property That Makes Sense
Another important point to remember, is to not buy a property unless it makes sense the day you buy it.
Pay attention to the rent-to-value ratio (it should be at least 1%), and make sure you have a positive cash flow after ALL expenses are covered.
Don’t waste your time trying to find lucrative properties in troubled areas.
An example of a troubled area would be a place like southern California, where the sky high prices throw the RV Ratio out of whack.
Generally speaking, in such places you can’t hope to make enough in rent to achieve proper cash flow.
Lots of people buy and hold, or flip houses, hoping to make a score with property value appreciation in SoCal, but don’t fool yourself.
That’s gambling, not investing, and you can get burnt bad.
Remember, when entering the real estate market for the first time, make use of a competent advisor who will guide you towards wealth creation and financial freedom.
Guard that credit score and work diligently to accumulate your down payment, and continue to inform and educate yourself with the resources available to you.
Buyer beware, so be wary!