How to Get A Property Under Contract Step-by-Step

Updated: Mar 30

Last night on our weekly #WealthWednesday Twitter Space, we talked about how to get your first deal under contract. Here are some of the tips the pros shared. (Recording available here.)


1. Educate Yourself

It only takes a few months to learn more than the vast majority of people know about real estate investing.

  • Join Facebook groups and Twitter Spaces to connect with others.

  • Buy business cards and hand them out.

  • Offer to help local real estate investors with their properties to earn the chance to learn from them.

  • Read books and listen to podcasts, especially those put out by BiggerPockets.

  • Go to open houses to get more comfortable.

2. Figure Out Your Price Point

Is it possible to go big for your first deal by bringing in partners or maybe even syndicating? Sure, maybe. But you'll probably start smaller and on your own. You should gather your financial information and speak with a lender about what your price point is. You may have some debt or credit issues to take care of, and that's OK. Get to work on that, but keep learning.


3. Start Analyzing Deals

Start analyzing properties that are active and on the market. Make a goal of doing around 5-10 per day. You'll learn a lot and start to see patterns.

  • 1% Rule: There are many properties listed every day, and you probably don't have time to analyze them all. The first thing to look at is the rent, then you divide that by the purchase price. If monthly rent equals about 1% of the price, dive in deeper.

  • Cap Rate: Next, start calculating cap rates. The cap rate is the annual net operating income divided by the purchase price. The net operating income is the total rent collected, less all expenses EXCEPT your mortgage. A good cap rate in my area is about 7%. Some areas, you might get only 3%, and others might have a 10% cap rate.

  • Cash on Cash Return (COCR): Next, figure out how much your cash is actually working for you by dividing your cash flow by your cash invested. You arrive at your cash flow after all expenses, including a mortgage. About $200-$300 per door per month is GREAT in my area. You cash invested ill include the down payment, closing costs, renovation, etc. A 15% COCR is great. Short-term rentals, which is my bread and butter currently, have about 30%, but they're a lot more work.

4. Define Your Criteria

At this point, you've educated yourself and you know how to analyze deals. You've spoken with a lender so you know what you can buy. It's time to shape your buying criteria.

  • Type of Neighborhood

  • Type of Property

  • Location

  • Returns

  • Price

Example: I'm in search of a duplex in a C-class neighborhood within 45 minutes of where I live for under $250,000 with a 6% cap rate.


5. Find an Agent

Some agents specialize in helping investors. I would try very hard to find one of them who understand you and your goals. They should be able to talk numbers and understand why you offer what you do.


6. Look at Properties

Send you agent properties from the MLS (with their help) or Zillow/Redfin/Trulia/etc. that fit your criteria. The agent may have others to suggest to you as well. Start looking, and use each showing as a time to validate your numbers.


7. Be Realistic About Costs

  • Taxes

  • Vacancy

  • Insurance

  • Maintenance

  • Closing Costs

  • Upgrades and Renovations

8. Run the Numbers

  • Cap Rate

  • COCR

  • IRR (this is advanced)

9. Make Offers on Properties Where the Numbers Work

  • It will be a little scary. It's OK, you've learned and researched. You're ready.

  • Don't be anchored to the list price.

  • Stick to your analysis.

Pro tips: Ways to Make Your Offer More Desirable:

  • Share a comparable sale

  • Shorter inspection period

  • Letter from your lender

  • No sale contingency

  • High down payment

  • Letter from you

10. Get Your First Deal Under Contract

Congrats!



Photo by Louis Renaudineau on Unsplash

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