After you have identified an investment property that meets your criteria (find my guide for this here), you need to move forward. And the next steps are some of the most important but least discussed. These include buying, renovating, and renting the property.
So that is what I’m going to discuss here.
Buying the investment property
The actual process of purchasing a rental investment property is very different from a residential property.
With residential properties, you usually negotiate on the front end and then your accepted offer is what you pay. Unless they uncover something major on inspection or something like that.
For investment properties, the negotiation happens on the back end, after you have the offer. 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 again here, you want to lock that property up.
This means that you put in an offer that works for your numbers. But this does not mean that you will be paying this number. Included in your offer is a financing and an inspection contingency. So, once the offer is accepted, your real due diligence period begins.
At the time of your inspection, 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.
Now, you have an investment property!
Renovating the investment property
After you have your final offer accepted and the contracts are signed, you will go into the closing period. This usually takes somewhere between 45-60 days depending on your lender.
During this time, work to come up with a plan with your general contractor. ou should base this on the work you anticipate needing from your walkthrough of the property with the contractor during the inspection.
First, set the expected dates that they will work on your property. They book out ahead so do not wait until you have actually closed. Give them the expected close date and book something out front. You can always adjust this as necessary.
Then, meet with your GC to go over the repairs and renovations that you want. You are looking for nice, easy to maintain, but cost effective options, otherwise known as “rental grade.”
If you are planning to do some of the work yourself, plan out the days and how long you estimate it will take you to complete these. Always err on the side of overestimating. Get supplies ahead of time so you are ready to go (and remember to save your receipts!).
When the time comes that you have closed and are ready for repairs/renovations, confirm everything ahead of time with your contractor. Make sure you check in at least once a day that they are doing work to supervise, help keep them on schedule, and make sure you like the work.
Once these repairs and renovations are done, you are ready to rent out your property. To keep vacancy down, you want to get renovations done a s quickly as possible!
Renting out the investment property
Ok so your repairs and renovations are done. What’s next? List the property online right? Not quite yet.
You want to make your property as attractive as possible. So, I really recommend getting professional photographs taken and then having them virtually staged. This will cost a few hundred dollars but pays for itself in decreased vacancy as well as improved quality of tenants attracted.
Once you have these completed, either you or your property management company should broadly advertise the website online as well as with signage in front of the property. Include the number of bedrooms, rent, and your contact phone number on the signage.
Great forums to advertise on include Zillow, Apartments.com, Hotpads, and Facebook Marketplace. There are many others but these are where we got most of our leads from.
The next step will be tenant screening. First, you or your PM will want to meet your prospective tenant for a showing.
Get a feel for the tenant to see if you think they will be a good fit. If you think so, offer them an application that includes a background check. You will want to confirm that they have at least 3x the rent in monthly income and have not had prior issues like convictions. This will come up on the background check and can also be confirmed by calling previous landlords.
Finding good tenants that will care for the property as their own, pay rent on time, and stay for many years is well worth the work that goes into screening them!
Putting it together
Buying, renovating, and renting your investment property the right way will set you up for long term success.
Failure to be mindful and meticulous with these steps unfortunately can take a long time to fix. Especially when you or your property manager select the wrong tenants for the property.
Watch Jordan’s Masterclass Webinar on The 12 Steps to Financial Freedom for Physicians here!
So, take your time with these steps. The first time you are investing, use mentors like other investors or your investor real estate agents for guidance and advice. Feel free to email me at [email protected] for questions.
Like anything, as you do this more, you will get better and better. The next step then becomes building systems to support these processes of buying, renovating, and renting our investment properties. This is what Selenid and I continue to work on.
Here are some additional resources to help you running an investment property as a physician!
- A Real Estate Investing Guide for Physicians
- How To Become a Successful Landlord as A Physician
- The Real Estate Flywheel Effect for Successful Physician Investors
- Introducing the Cash Cow Cash Flow Calculator
What do you think? Do you invest in real estate? Any tips for buying, renovating, and renting investment properties? Any bad experiences we can all learn from? Let me know in the comments below!