How To Actually Buy A Real Estate Investment Property
Dec 11, 2024This post was originally published on August 30, 2024 by Dr. Jordan Frey on The Prudent Plastic Surgeon
I’ve said it before but I’ll say it again…I love real estate investing. Now that I’ve gotten more experience and have developed systems, the process seems straight forward. But remember, Selenid and I only started doing this 4 years ago. So I remember how daunting and overwhelming the process can appear. That’s why I’m going to go through the actual process of how to buy a real estate investment property in this post!
Let’s get started
In this post, I’m going to forgo discussing all of the amazing advantages of real estate investing, including cash flow, equity build up, and tax perks. I’ve discussed these in previous posts that you can access through links at the bottom of the post.
Instead, I am going to focus on a step-by-step, straight forward, easy-to-understand, no frills outline of the process that you will go through when you buy a real estate investment property.
The point is not to be fully comprehensive but to go through all the steps you will need to complete. More details can be found in many of the other real estate related posts throughout this blog.
But I will leave notes under each step describing it a little bit in more detail along with other members of your real estate investing team that will be involved.
Enjoy!
Nota Buena: Included within all our these “steps” is assembling your real estate investing team, largely composed of the members that I include in each of the steps below.
Step 1: Secure Financing
The first thing you will want to do once you decide too invest in real estate is to figure out how you are going to buy the in vestment property
There are a ton of different ways to do this. But for the sake of this post I’ll mention two:
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Buy it in cash in which case you already have the funds secured, or
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Traditional financing with a mortgage
If you are planning to use traditional financing, you will want to get in touch with a bank or lender to get a “pre-approval” letter.
This pre-approval letter says how big of a loan you are “pre-approved” to take out with the bank. This will then set the price range for the investment properties that you can invest in.
Team Members Involved: Bank/Mortgage Lender
Step 2: Look for properties
This step has a couple parts:
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Finding an investor real estate agent
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Searching for properties on your own and with your agent
I’ll have a post coming soon featuring my investor real estate agent going into a lot more detail on the process of finding the right one for you. Put very bluntly, you want an investor agent with experience, knowledge, and that is an investor herself.
Once you have an agent, he or she should be finding deals for you. You also should be looking on your own. I like to use Redfin to search for potential properties. If we find one we think could be good, we text it to our agent and get their thoughts/arrange a showing.
Team Members Involved: Investor Real Estate Agent
Step 3: Go see the property
After you’ve identified a potential property, go see it with your agent!
Even if you are not sure it quits meets your criteria, still go see it. The more properties you see, the better you will get at evaluating them. It’s the best kind of practice.
Team Members Involved: Investor Real Estate Agent
Step 4: Evaluate/Analyze the property
After viewing the property, you will want to take all available information and analyze it to see if it meets your criteria.
I have a full post here that goes totally in depth into my methods of analysis:
How to Screen and Analyze Real Estate Properties the Right Way
Step 5: Put in an offer or walk away
If the property meets your criteria, put in an offer! To do this, you will tell your agent what you want to offer and they will present it to the sellers.
If the property does not meet your criteria, just walk away. Or you can adjust your offer so that it does meet your criteria.
For investment properties, the negotiation happens on the back end, after your offer is accepted. This has led to the common adoption of a strategy called locking up a property. Basically, if you find a property that meets your criteria as defined in the previous video, you want to lock that property up.
Team Members Involved: Investor Real Estate Agent
The following steps obviously only apply if you decide to put an offer in on the property:
Step 6: Offer accepted! Sign contract and attorney review
Once your offer is accepted, your agent will send you the contract to sign. You and the seller(s) will sign it.
Then, it gets sent to both attorneys for review and approval. This is the first layer of escape in the process. If for some reason you change your mind or something weird comes up, you can bail at this point by having your attorney not approve.
Team Members Involved: Investor Real Estate Agent, Real Estate Attorney
Step 7: Inspection/Due diligence period
Once the sellers accept your offer, your real due diligence period begins.
At the time of your inspection (if you include an inspection contingency in your offer as I recommend that you do), you will have your inspector come, ideally with your agent, property manager and general contractor.
Your inspector does the inspecting, your agent and property manager helps you estimate expected rents, and your general contractor estimates expected repairs.
After the inspection, armed with all of this information, you go update your numbers to see if everything still works.
If it does, great!
If not, then you work to negotiate the price down to something that works. The beauty is that once you have locked up the property, the seller cannot entertain any other offers.
Team Members Involved: Investor Real Estate Agent, Inspector, Contractor
Step 8: Escrow, Insurance, Mortgage Commitment and Waiting
After the inspection, if you decide to continue moving forward (remember, the inspection contingency is your 2nd escape hatch), you will put whatever earnest money you committed to in your contract into escrow.
This is basically an independent account where this money is held until the deal goes through. If the deal doesn’t go through for reasons like your financing does not come through, you get the escrow money back. If you back out for other reasons, you will not get the money back.
At this point, you should also contact your insurance agent to get them working on a policy. You will have to supply this to your attorney before closing.
The next step after this is to get your mortgage commitment.
This is not much work on your end. You will send your signed contract to your mortgage lender to let them know that you have a deal. They will request documents like bank statements, etc. They will also request an appraisal of your property. Then they will send all the information to their underwriter. The underwriter will complete your mortgage commitment letter basically confirming that they are going to lend you the money.
If they decide not to lend you the money, you can get out of the deal. Another escape hatch.
Team Members Involved: Investor Real Estate Agent, Real Estate Attorney, Insurance Agent
Step 9: Closing
After the mortgage commitment comes through, you basically just wait for your closing date. At this point, your attorneys are working on things like getting the title report, etc. No active work on your end.
Once you reach the closing date, you will do a walkthrough of the property the day before to make sure everything is as promised. Then, you’ll sign documents and the property will be yours!
You did it! You didn’t know how to buy a real estate property, but now you have one that will accelerate your path to financial well-being and freedom!
Team Members Involved: Real Estate Attorney
Step 10: All the rest
After the property is officially yours, you will then work on things like any planned repairs/renovations as well as getting tenants if the units are vacant.
This is a post unto itself that will be coming soon!
And that’s how to actually buy a real estate investment property!
I hope that this post has given you a good sense of what the process of buying an investment real estate property is actually like.
Like I said, it is not fully comprehensive but this is the guideline of what happens. Before I knew this, I really felt like buying a property was such a black box. Being aware of this helped demystify the whole process for me and made it a lot less intimidating.
Investing in real estate in a huge wealth accelerant and I really believe that physicians are well positioned to take particular advantage of it!
Want to learn more about getting started in real estate investing as a physician? Check out these posts!
Plus, if you are looking for costs segregation services for your real estate, here is a great resource!
