Finance Roll

You have done all the research. You talked to other landlords and investment property owners. Perhaps you have attended some meetings of your local landlords association to get a flavor for managing an investment property by meeting some of your future peers. You looked at the market, identified a target property or two. Now it's time to make your move. Follow these three steps to get started on the right foot.

How much do you offer?

Your first step in determining how much you will offer on a property is the financial metrics. Collect as much operational data as possible on your target properties. Items like an Annual Property Operating Data (APOD) report and a rent-roll are key to help you plan your offer. Calculate and compare Cap Rate and Gross Rent Multiplier with other properties in the area.

Know the overall market. Is it a buyer's market where prices are falling? A seller's market where prices are rising? Or is the market stable? In a rising or falling market you may want to adjust your offer slightly from the market value you have determined from the financial metrics. Be careful that you remember the metrics are the best measure of the property's value. Varying too much from the value dictated by the numbers could bring trouble in the future.

Factor in property condition. If the property will require repairs to bring it up to a standard that will allow for immediate positive cash flow, reduce your offer accordingly or present an offer conditional on repairs being made.

Financing the deal.

As with any non-cash purchase, knowing you have financing in place before you put together an offer is key. This is particularly important in competitive environments where you will likely be competing against other pre-approved and cash buyers. A seller will quickly move past an offer that they feel has a chance of falling through due to lack of funding. Remember that financing an investment property requires a more rigorous approval process than a traditional mortgage loan. Working with a real estate pro experienced in the sale of income producing property will help you quickly find lenders that specializing in financing investment property.

Making the offer.

Now that you have the financing in place, you know what you want to offer, it is time for your agent to go to work. Purchase contacts will typically vary based on state requirements. The actual paperwork of the offer needs to be structured according to the guidelines of the state of purchase. Be sure to have your agent thoroughly explain the paperwork you are submitting. It is up to you to verify that the offer you want to make is properly reflected in the offer documents. Be sensitive to the timing of the offer. It would be very disappointing to miss out on a property because you missed a seller deadline. By the same token, you will want a dead line for acceptance of your offer to put some pressure on the seller.

Now you are ready to sign off on securing a part of your financial future.