First-Time Home Buying: Everything You Need To Know

So you want to know about real estate investing? First you need to know about buying a home for the first time. That’s right, we’re taking it back to the basics. I wrote this post to teach you exactly what you need to know when you’re buying your first or even second property. 

I wrote this post for the beginners who don’t know much about real estate in general; if you:

  • Are (interested in) buying real estate for the first time
  • Have 0 familiarity with the home buying process
  • Want to get started in real estate investing but don’t know HOW to start or what you need to do
  • Are confused about all the lingo and acronyms like MLS, FHA, inspection, etc.

If you’re thinking to yourself, “Rich, I already know this stuff and I am ready for more” then hold tight I’ll be releasing another post discussing strategies for real estate deals.

Class is in session so let’s get started!

What is real estate? 

Let’s take this old school and start with the definition.

Real estate is the land and anything that sits on the land aka buildings such as homes, shopping centers, parking garages or can even be crops like a farm.

Real estate agents

In most cases, real estate agents are key players to real estate transactions. I say “in most cases” because you don’t always need a realtor when doing a real estate deal. Most people don’t know that you can work directly with the seller. 

However, for those of you just starting out then I recommend that you use a realtor.

Why use a realtor?

The biggest benefit to using the RIGHT realtor is that they have access to something you don’t have access to: the MLS (Multiple Listing Service).

What is the MLS?

The MLS is just a large database of all the homes available for sale or that have already sold. It even shows information for each time the home has sold by every previous owner.

How do I choose a realtor?

You may have noticed that I said the RIGHT realtor. That was on purpose.

🗣 All real estate agents are not the same. I repeat, all real estate agents are not the same!

The real estate agent you pick should own property themselves. In fact, they should ideally own multiple properties. Would you take shark diving lessons from someone who’s never been shark diving? No!

The same thing applies to real estate. Don’t take advice about buying a home from someone who has never bought a home.

Do I have to pay the realtor?

Nope! Note that the seller pays for the buyer’s agent and their own agent from the money made on the sale of the home. Each realtor typically makes 3% commission of the sales price. So a $300,000 home would gross each realtor $9,000 before broker fees and such.  

Find a great realtor or even wholesaler (a person who usually has deals at below-market prices but these homes sometimes need extra TLC) to find housing deals in your desired market. 

Finding your next property

Buying real estate is like dating. Know what you are looking for or you’ll be swiping left over and over and over. You’d be surprised at how many people start house-hunting without having a clear idea of what they want and don’t want.

This is a major key right here:

Before you look at a single piece of property, sit down for 10 minutes and write your criteria down. Be clear about what it is that you are looking for.  Click To Tweet

The last thing you want to do is waste you and your realtor’s time by driving around looking at 25+ homes and not buying anything. 

Your criteria should include things such as:

  • Square footage — how big do you want the home to be? This can be a concise range (900-1,300sq ft) as an example.
  • # of bedrooms/bathrooms — if you need 2 bathrooms then keep it real with yourself.
  • Neighborhoods/areas within a city — sure you want to buy property in Atlanta, Miami or Houston but these are fairly spread out cities. Narrow it down to neighborhoods or zip codes so that you’re not sorting through hundreds of homes.
  • Price range —  how much can you afford and how much do you want to spend. keep in mind any additional costs to renovate if needed
  • Rental rate — how much can this home rent for? Check resources such as www.rentometer.com to find out. Zillow is also an okay resource to cross check.

Property Managers

My first rental was out of state. I was living in NYC and bought the property 1,200 miles away in my hometown of West Palm Beach, Florida.

As a landlord (the owner of the property), you need to find a tenant, collect the rent, and handle any issues that may come up. My goal was to scale to owning rental properties by the dozen. There’s no way I’d be able to do that if I also had to handle managing each one in different cities. 

If you find yourself in the same spot, you need to get a property manager. This will free up your time and allow you to focus on getting more property instead of being distracted by tenants or activities that involve managing your portfolio. 

Note: Some landlords do manage their own properties. It depends on your situation. Personally, I’d much rather focus my time on getting more property than having to manage what I have. 

What is a property manager?

A property manager is supposed to be heaven sent. Their role is to find a great tenant, collect rent, deal with lease renewals, maintenance requests, advertising vacancies, and recommending renovations that would allow you to collect more rent.

How do I find a good property manager?

The best way to find a good property manager is through a referral. If you don’t know anyone, don’t panic. You can also easily find dope property managers by using Google search. Make sure you check out reviews and speak to someone at the company to ask questions

How much do property managers cost?

PMs usually cost anywhere from 8-12% of the monthly rent. 

For example, say you’re collecting $1,000 in rent and your PM charges 10%. That means:

  • Tenant pays $1,000
  • PM’s cut is $100
  • You get $900 deposited into your account every month

Ideally your expenses are less than your rent, so hypothetically speaking a mortgage around $500 and taxes and insurance being $125. That means you could essentially profit $275 every month, own 10 and that’s $2,750 of cashflow per month.

other fees

PM’s do charge other fees such as one time fees for finding tenants, sometimes half month’s rent, and for paperwork of renewing leases of current tenants.

What is a mortgage?

A mortgage just means you’re borrowing money to purchase real estate. 

What is a lender?

A mortgage lender is the party that loans you the money to buy real estate. Lenders are essential to your real estate deal if you are getting a mortgage on a property.

How do I find a lender?

It’s ideal to get a pre-approval letter from a mortgage lender before going house shopping. This way you can know what your money situation is and know what price range to stay under. Hint: this was a part of the criteria mentioned above.

A tip for finding great lenders is to use small community banks or credit unions. They are less stringent than big banks and don’t have to conform to certain guidelines required by Fannie Mae. 

Banks and credit unions are the most straight forward way to get funds to purchase a property. I’m sure you want to get into using OPM (Other People’s Money) or hard money lenders but let’s slow down first. Remember this is your first deal. Unless you’re great at persuasion it’ll be hard to persuade an individual to lend thousands of their hard-earned money to someone who’s never done a real estate deal. But hey! Maybe you have a rich aunt who loves you dearly and thinks you can do anything and happily cut you a check.

How much money do I need to get a mortgage?

You should have sufficient savings for a down payment and closing costs. No, I can’t tell you how much you need because it depends on so many factors such as the price of homes in the area you’re looking to invest in and what percentage you need to put down. However, if I were to throw out a number… $15,000. Can it be done with less? YES!

How much is a down payment?

Typically to buy an investment property, you need to have a down payment of 20-25%. If you’re buying a $100,000 property, this means you need to have $20,000 to $25,000 for the down payment. Note: closing costs are extra.

I bought my first property as a second home (vacation home) because it was out of state.  Second home purchases only require 10% down. Using the previous example, you’d save $10,000 – $15,000. It’s worth looking into.

I don’t have 20% to put down, what should I do?

If you plan to live in the property, you have hella options. I recommend that you look into federal First-Time Home Buyer Programs such as the FHA (Federal Housing Administration) Loan and the VA (Veterans Affairs) Home Loan

FHA loans only require a 580 credit score and 3.5% down payment while a VA loan can be done with 0% down. The FHA also has a 203(k) Rehab Loan which allows you to borrow the money for the purchase and for renovations at 3.5% down. 

Many states and cities also have their own First-Time Home Buyer Programs. If you need help looking them up, just Google any combination of these search terms:

State Name or City Name or County Name

First-Time Home Buyer Programs or First Time Home Buyer Grant or Down Payment Assistance  

For more details speak to a mortgage professional (not me) and inquire about your options. 

Property inspections

One thing that’s pretty cool is buying property “sight unseen.” There have been a few occasions where I’ve purchased a property without actually seeing it in person. It’s all possible with technology, a great realtor, and a thorough property inspector! 

What does a property inspector do?

A property inspector is someone who spends about an hour or two looking for any defects within the home. They do a thorough check of the structure including the age of the roof, electrical system, HVAC (heat & A/C), plumbing, foundation, the whole 9. 

They’ll then give you a PDF report of their findings. Any major issues you can request that the seller either come down on the price or get the issues found fixed before closing.

How do I find a property inspector?

Of course, Google is your best friend to find a property inspector in any city. 

Idk Rich, this sounds crazy! How can you buy a house without seeing it?

Trust me on this one. A paid professional knows what to look for way more than I (and you) do. I’d just be in the way! 🤣

One thing I’ve learned is to let folks that know what they’re doing do their job, period. 

How much does a property inspector cost?

Expect to pay about $250-400 for a property inspection depending on your area and the size of the home. I use an inspector on EVERY single property I purchase. I don’t want any surprises after spending thousands on a property because surprises can easily cost thousands of dollars. 

Cost vs benefit.

In closing…

Don’t make things more difficult than they need to be. Google is your friend and I suggest grabbing a book titled The Millionaire Real Estate Investor by Gary Keller. Feel free to subscribe below for more great tips and freebies!

Category: Real Estate
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