Four years ago, I was on the phone with ore mi atata, talking about anything and everything, from baby diapers to “oh by the way, there’s a 4-unit property available for sale if you’re interested”. That was the beginning of what would become my real estate investment journey. Today, I sit on my couch, watch Netflix, and the ca-ching comes into my bank akant every month without lifting a finger. That’s called passive income baybay! Sounds like something you’d want too? Well, then read on.
I bet you a wrap of suya that I know the questions on your mind, like “How do I get started with investing? How do I finance a property? How do I identify a good deal? What mistakes should I avoid? How do I manage a rental property?… So let’s just dive right into it.
1. How do I fund my purchase? If you won’t live in the house, then the down payment for an investment property is typically 25%. So if the property cost $200k for example, you’d be expected to drop a whooping $50k before they hand over the house keys to you. Is this a ton of money? Absolutely, yes. However, there are various state-specific programs that waive down payments and/or closing costs, with very specific requirements. Don’t worry, you won’t have to sacrifice your right arm. The asks are usually straight-forward, like in some cases you must be a first-time home buyer. Some others make you sit through home-buyer classes… but hey, who’s complaining about free money? Oh and also if it is your first home purchase, then you may get a 3.5% down payment FHA loan. Sweet deal, right? Yep, but of course there’s a caveat – you must live in the house.
2. What type of real estate investment property should I purchase? Here are three different approaches you can take –
- Fixer-upper. This is when you buy a beat down property, fix it, and then sell. Be warned – this is not for the faint-hearted, because anything that can go wrong will probably go wrong, because #villagepeople. It also usually requires a huge lump of dollarses up front. If you know good, reliable contractors and handy (wo)men, and can get your hands real dirty, and manage renovations, then this might be a good one for you. My dears, as for me, this issa no at my current stage of life.
- Turnkey Property. This is when you buy a solid property at a bargain price, pretty it up, and then sell. The key here is “bargain price”. If you pay too much for it, then you is gonna be stuck bro.
- Turnkey Rental. This is when you simply buy and rent. AKA, you become oga landlord or landlady. This right here is my jam because it brings in passive monthly income while the property appreciates in value for whenever I am ready to sell in the future. It’s also lower risk compared to a fixer-upper.
3. What do I consider before buying a property? Here are two main things to consider, especially if you are buying a property to rent –
- Location is everything. It determines whether your property will rent out, appreciate in value, and attract quality tenants. The experts say that you should always look to buy the worst house in the best neighborhood.
- Run your numbers. Before you make an offer on a property, consider your expenses, taxes, how much you can receive in rent, vacancy rate, etc. Bigger pocket has a calculator tool that can figure all this out for you.
4. How do I manage a property? Especially if you’re a newbie, I suggest you transfer your headache to a property manager. The second thing you can do is to be intentional about getting quality tenants. Trust me, it will make all the difference in the world.
If you are a beginner investor, a good starting point is my podcast episode with ore mi atata, Bolanle – the Queen of real estate, because Barbara Cochran ain’t got nothing on her… Aunty Barbara, it’s play I’m playing oh, your girl needs a contract or two from you. Anyway, on the podcast, Bolanle spilled all the tea on how she paid zero dollars down to buy her first investment property in Washington, DC, and how she had a not-quite-tenant who was straight up coo-coo and thought he owned her house. True story… can’t even make this stuff up.
Please drop any questions you have in the comment section below. If you need a deeper conversation with the real estate queen herself, I will send you some paperwork and my akant number, as her personal manager 🙂
If you missed Part 1 of my Building Wealth 101 series, click here to read about stock investments.