6 Steps to Land Your First Cash Generating Property

Buying a home for yourself can be complicated… buying one as an investment is a whole other beast…

There are similarities in the process, but there’s quite a bit more risk involved if things fall through.

Think about it… you overpay for a house you’re going to live in, you still have the luxury of living in it and finding a better place from there.

If you overpay for a house you want to flip or rent out, you could lose a LOT of money for however long your project is planned for.

That’s why I’ve put together these 6 steps to make sure you’re making the best moves when locking down your first cash generating property…

A lot of these steps apply to buying your own home too, but they’re crucial for an investment…

Step 1: Credit Check

A bad credit score can keep you from getting the financing you need, or it could prevent you from getting the best interest rates.

Get a copy of your scores (there are 3 different credit scores) and figure out if yours is good enough.

If it isn’t, raise that score by practicing some good financial habits over the next months before starting the home-buying process.

Step 2: The Cash Plan

First, set your budget. You can use online calculators to determine this, but knowing the following rule of thumb can’t hurt: All your monthly home payments should not exceed 36% of your gross monthly income.

And you must consider that those expenses will fall directly on you for any period of time there’s no tenant in there.

Next you have to line up the cash. Keep the closing costs in mind and figure out if you’re employer offers any help in this regard. Most lenders like to see a 20% down payment before giving you a loan.

Step 3: Finding the Home

My advice is to use an “exclusive buyer agent”, who will be loyal to you. A “regular” real estate agent will technically be working for the seller.

Then search for a home whilst keeping in mind the quality of schools, neighborhoods, etc., as well as the values of other homes in the area. Do your homework.

Step 4: The Offer

Work with your buyer’s agent to plan out an offer. Consider the last several similar real estate transactions in the area to give yourself a starting point.

Know what you can afford but move quickly and don’t lowball too far if you really want the home.

Step 5: Securing the Loan

You should have entered a contract upon agreeing to a price with the seller. That contract should allow you to conduct a home inspection, and any good-faith deposit for the contract should go into an escrow account allowing you to get the money back if the deal falls through.

Then contact your lender and secure terms if you haven’t already done so.

Step 6: The Close

Make sure you get a quality home inspection before closing the deal. But once everything is approved, you should be confident and free to close!

Your buyers’ agent will be able to help you through the process and keep you updated on what to expect next. And as long as you can complete these steps, you’re ready to buy that cash generating home!

The next process is finding a tenant. I’ve covered this in other articles, but posting on the rental markets (Zillow and apartments.com) is a good start.

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