The Timeline of How an Investment Property Purchase Goes
Deciding on purchasing an investment property? Well, we would like to share with you the most simplified timeline of how that process will go. We come across a great deal of people who are interested in getting started but have no idea how to start or navigate the process. So, let’s jump right in!
Step 1 - Identify Your Preferences/Parameters
When it comes to investing it’s essential that you narrow down what you are and are not looking for. It’s better to have a specific, narrowed scope so you can be as efficient as possible. For example, do you want a residential or commercial property. If residential, do you want a single family or multi-family? We suggest selecting a specific target and sticking to that.
Step 2 - Determine Your Budget
This is really going to tell the tale for you. How much should (not can) you be spending? The reason I say ‘should’ is because it’s imperative that you spend what makes sense to make the investment profitable. Don’t spend the max amount your bank will lend you as that can end up badly down the road. Remember, the banks want to lend you as much as possible so they can make money off you. They don’t have a vested interest in your future the same way you do for yourself.
Step 3 - Analyze Potential Investments
When you figure out what you’re looking for and how much you want to spend it’s time to jump into the market to start scouring the available listings. We suggest that you pair up with a property manager/experienced realtor so you can get expert opinion/analysis. Nexus offers this service at no charge. Learn more about it here
Step 4 - Locate Favorable Opportunities
Determining what property would be best requires a great deal of research, experience, and numerical data. We suggest that you utilize our free return on investment calculator to discover what your potential return % would be. It’s in our opinion that you seek an ROI that is 15% or greater. This leaves room for variables such as turnover + maintenance costs. Even if you break even cash flow wise throughout the year on your expenses, you will be building equity + gaining appreciation with someone else’s money!
Step 5 - Arrange Showings
Once you locate a favorable property, you’ll need to setup a showing with the listing real estate agent. It is recommended that in your emailed request to that person you provide your loan pre-approval document. This shows the real estate agent that you are pre-qualified for a loan and serious about your endeavor.
Step 6 - Submitting Offer
If the showing goes well and you like it then it’s time for you to submit an offer. The offer should include your full name, offer price, loan conditions/term requirements, and any other contingencies that you would like to accompany the deal. Once this is completed sign it and email it to the real estate agent.
Step 7 - Coordinate Inspections
If your offer is accepted, you’ll want to get the ball rolling on getting a home inspector into the property to check it out. These inspectors are often busy, so we suggest contacting them as soon as possible to avoid delays. Savvy investors will waive their inspection rights to increase the chances of their offer being approved.
*This is not suggested unless you are familiar and comfortable with the conditions of the property as you’ve seen.
Step 8 - Negotiate + Prepare Purchase Contract
The purchase and sales contract are typically standardized state by state. Your real estate agent will have a blank PDF copy of this form. You’ll fill out your information, sign it, and send an earnest money deposit to the listing broker to put the deal as ‘pending’. From there, the onus will be on you to get your loan approved as quickly as possible. Remember, if you miss any deadlines on the contract you can request an extension. This usually will happen if your lender needs more time to approve your loan.
Step 9 - Attend Closing
The closing for the loan will typically be 45-60 days from when you sign the contract. This will be your opportunity to meet the seller of the property, ask any last-minute questions, and finalize details. Don’t forget to ask for the keys from the seller! From there you are now in charge and ready to go!
Step 10 – Hire A Property Management Company
If you have a full time job, family, and/or enjoy your leisure time you will want to hire a property management company. In addition, if you plan to expand your investment portfolio it will be increasingly difficult for you to manage that on a full-time basis. It is an expense, but an expense that is deductible on your tax returns and worth it’s weight as it saves you the hassle + headache.
We would love to hear your feedback on this topic! Post a comment below so we can start a discussion!
Gregory Rice is the Vice President of franchise sales for Nexus Property Management®.
Nexus Property Management® is a National Property Management Franchise that manages all types of rental property from single family homes or condos to large apartment buildings and complexes.
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