REAL ESTATE INVESTING IN COLORADO

Looking to buy a rental property that generates impressive cash flow? Learn these 12 essential steps to make a wise investment decision and grow your wealth. In this guide, we'll walk you through the process, so you can confidently purchase your first investment property.

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I can genuinely say that building a portfolio of investment properties is the best financial decision I've made. It's helped me create a snowball effect of increasing cash flow from my rental properties, enabling me to invest in even more assets and boost my monthly income.

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I vividly recall my anxiety about investing a significant portion of my net worth in a single asset. I questioned whether I was making a sound deal and whether I would be able to manage the property to keep it consistently rented. While everything eventually fell into place, I learned numerous lessons the hard way. Had I known then what I know now, I could have saved thousands of dollars and countless hours of stress.

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So, if you're thinking about buying your first rental property, let this guide streamline your experience and help you avoid the hurdles I faced!

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First Step: Establish Your Objectives

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It's easy to overlook this initial step, but it's crucial for building a successful portfolio. After all, it's difficult to achieve success if you're unsure of what it actually entails.

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Begin by asking yourself, "Why do I want to own an investment property?" You might have responses such as "I want to quit my 9-5 job," "I want to travel the world," or "I want an additional $20,000 in yearly income."

Answering this question allows you to better select the long-term strategy that aligns with your goals. If you wish to replace your job and explore new places, you might set a goal of generating $10,000 per month in cash flow to comfortably do so.

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If multi-family apartments are your investment of choice, this could mean acquiring 40 units that produce $250 per month in cash flow. Your portfolio could be as small as 10 4-plexes (apartment buildings).

Alternatively, if you prefer single-family homes, you may aim to buy 17 houses that yield $600 per month, which you rent out.

Whatever your objective, it's crucial to establish one, allowing you to choose a strategy that can help you achieve it within an acceptable timeframe.

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Step 2: Determine Your Real Estate Investing Budget

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Before diving into the world of investment properties, it's crucial to know what you can afford.

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Surprisingly, setting a budget for an investment property is easier than most people think. There are only two factors to consider regarding the down payment.

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Firstly, determine how much money you're truly comfortable investing. While some individuals are at ease investing up to 50% of their wealth in property, others prefer to limit real estate investments to 20-25% of their total wealth.

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Choose a number that suits you, and multiply it by five to calculate the total property value you can afford (keeping in mind that banks will cover 80%).

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The second aspect to consider is whether you're open to "house hacking."

House hacking involves purchasing a multi-family property, living in one unit, and renting out the others.

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By residing in the property, you qualify for a loan with a down payment as low as 3.5%. This makes it possible for new investors—who might not otherwise afford a property—to purchase sizable rentals.

I began my investment journey through house hacking, and highly recommend it if you're open to living in a duplex, triplex, or 4plex.

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Discover the Secret to Buying a Rental Property Without a Down Payment

Are you dreaming of dipping your toes into the real estate market, but don't have a substantial amount of cash to invest? Worry not, there's still hope for you to kickstart your journey in property investment without house hacking.

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Though it might seem challenging, you can find deals that let you enter the world of real estate without a down payment. The secret lies in finding sellers open to owner financing, enabling you to secure a mortgage without approaching a conventional bank.

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In my experience, owner financing is a popular option among older sellers who have already paid off their property. By financing it themselves as the lender, they can enjoy the benefits of both the sale price and the interest generated by the loan.

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Moreover, this arrangement can be a win-win situation, especially for sellers looking to secure monthly income during their retirement years. Instead of receiving a lump sum through traditional sale proceedings, they can use the regular payments to fund their golden years or even reinvest in more rental properties.

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So, if you're eager to venture into real estate but lack the necessary capital, consider exploring the world of owner financing. It might just be the perfect solution to turn your real estate ambitions into reality!

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Step 3: Mastering Cash Flow Forecasting

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When investing in a property, the primary motive is generally the monthly income it generates. However, it's essential to understand that not all properties yield positive cash flow—some may have expenses which outweigh the income.

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As a home buyer or seller, it's crucial to be well-versed in analyzing a property's financials. This can help you in two ways: A) determining if the property is a great deal, and B) ascertaining if it will contribute to achieving your financial goals. By mastering cash flow forecasting, you'll have the upper hand in making informed decisions about your property investments. A conversational and brief approach in understanding property investments can transform you into a savvy investor, ensuring your decisions align with your objectives and long-term success.

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Step 4: Selecting Your Investment Market

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Once you've determined your budget and learned the process of evaluating investment properties, it's time to choose the market that best suits your goals.

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It's a good idea to begin by exploring your local market. Investing close to home often proves to be more convenient and manageable.

Begin by using a rental property calculator to analyze various property types (e.g., single-family homes, duplexes, 4plexes) within nearby neighborhoods to identify properties that generate positive cash flow.

If you discover deals that yield at least a 5% cash-on-cash return, it's likely that you can successfully invest in your local market.

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However, if your local market doesn't meet your expectations, consider consulting experienced investors in your area for advice on which markets they're investing in. This can be especially helpful if you decide to invest out-of-state, as these connections can provide valuable referrals for top-notch real estate agents, property managers, and contractors.

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Step 5: Secure Pre-Approval for Financing

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Once you've chosen your desired market, the final step before browsing properties is securing pre-approval for financing.

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Talk to your real estate agent to get a recommendation for a trustworthy lender. A skilled lender can prevent a deal from falling apart due to unforeseen financing issues that a less experienced lender may not handle well.

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The lender will require some basic financial details from you and then issue a pre-approval for the maximum amount you can afford for your new home.

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Obtaining pre-approval won't affect your credit score, but it will demonstrate to sellers that you're a serious and capable buyer. In competitive markets, sellers frequently won't entertain offers from buyers without pre-approval.

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Step 6: Begin Your Property Search Journey

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It's finally time to dive into the exciting world of property hunting for your investment!

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There are two primary methods for finding investment properties: on market and off market.

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Discovering On Market Properties:

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On market properties are those listed on the Multiple Listing Service (MLS) by real estate agents and can be found on popular websites such as Zillow, Realtor.com, and Trulia.

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Competition can be fierce when it comes to investment properties, so it's a good idea to ask your realtor to set up "MLS Alerts" for you. This way, you'll receive an email notification the minute a property matching your criteria becomes available, allowing you to quickly analyze and determine whether to make an offer.

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Uncovering Off Market Properties

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Off market properties, on the other hand, are investments that aren't publicly listed for sale on the MLS. You'll need to search for these properties yourself – or connect with other investors in your circle.

To find off-market properties, start by looking for homes in your area that display "for rent" signs in the yard but aren't listed on any online rental platforms – except for perhaps Craigslist. Landlords who haven't embraced modern technology may have properties rented below market value and might be interested in selling, making them a potential goldmine for your investment portfolio.

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Here are a few alternative methods for discovering off-market properties:

• Attending real estate investor gatherings and purchasing from fellow investors

• Acquiring properties through wholesalers who already have contracts

• Mailing directly to neglected properties you have your eye on

• Reaching out to property owners via cold calls

• Displaying "bandit signs" to show your interest in buying (note: this may not be permitted everywhere)

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Step 7: Begin Submitting Offers

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When you come across a property that aligns with your goals and appears to be a promising investment, it's time to take action and make an offer!

Here are some valuable strategies for getting your offer accepted at the lowest possible price:

• Don't hesitate to offer well below the asking price. Remember, we're on the lookout for great deals, so submit an offer that matches your desired return. Don't fret over potentially losing the deal – it's better to wait for the right opportunity than to settle for an average one.

• Resubmit your offer if it gets turned down but the property remains on the market for another two weeks.The seller might reconsider your proposal.

• Consider shortening the inspection period if you can. This may make the seller more likely to accept your offer, as they'll find out sooner whether or not the transaction will proceed.

• Include a personalized letter alongside your offer. Introduce yourself and explain your intentions for the property. Make sure the letter casts you in a positive light, giving the seller confidence in your ability to close the deal.

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Step 8: Navigating Inspections

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Great job on securing a property under contract! Next up, passing inspections and securing financing – then you're all set to close the deal.

Inspections are a crucial step in ensuring you won’t face unexpected costs as a result of unforeseen property issues.

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This is the perfect opportunity to address and negotiate any discovered expenses or problems, potentially leading to repair credits or a lower selling price.

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If you're a new investor, we highly recommend consulting a licensed home inspector for your initial purchase. They'll provide you with an in-depth report, typically over 20 pages, covering all aspects of the property and highlighting necessary repairs.

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Additionally, it's strongly advised to hire a separate company to perform a sewer inspection using a camera. This will help confirm there are no cracks or breaks in the sewer line, saving you from potential headaches down the road.

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Step 9 (Optional): Selecting a Property Management Company

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Considering an out-of-state investment or simply short on time? It might be a good idea to look into hiring a property management company.

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Start by seeking referrals from your agent or fellow investors, and set up some interviews. Here are essential questions to ask potential property managers:

• Can you explain your accounting process and provide a sample report?

• What are your hourly rates for different maintenance services?

• What is your fee structure for management?

• Is it possible to interview some of your current clients (property owners)?

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After choosing a property manager, keep them in the loop for the closing date, as they'll be the ones receiving the keys on that day. In a conversational and brief tone, this rewritten content captures the essence of the original piece while making it more engaging and concise for home buyers, home sellers, and general audiences alike.

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Step 10: Securing Your Financing

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Once you're under contract, get ready for your lender to dive deeper into your financial situation. They'll perform a hard credit check to confirm everything you've provided.

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Next up, they'll arrange an appraisal of the property to ensure its value aligns with what you're paying for it.

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Stay prepared for a bit of back and forth, especially when it comes to submitting necessary documents. However, rest assured that the process should be relatively smooth sailing.

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Step 11: The Big Day - Closing!

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Kudos on reaching the closing day!

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You might be surprised by how the closing day unfolds, as more and more of these events are going virtual. No matter the format or location, be prepared to sign a hefty stack of documents.

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Buyers and sellers usually wrap up the deal at separate times (or through virtual meetings). If you're working with a property manager, don't expect to receive keys yourself – they'll handle the collection.

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Take a breather – discovering and buying an incredible investment property is no small feat, and you've achieved it! Enjoy the accomplishment and get ready for the next exciting phase!

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Step 12: Expanding Your Property Investment Portfolio

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Congratulations on acquiring your property! If you decided not to enlist the help of a property manager, it's crucial to develop excellent landlord skills. Effectively overseeing your tenants and looking after your property will substantially impact your investment returns.

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Once you've mastered the art of being a landlord, it's time to apply the valuable lessons you've gathered and replicate the process.

In certain situations, it might be advantageous to sell one of your properties and use the profit to purchase a larger one with higher potential cash flow. By utilizing a 1031 exchange, you can defer any capital gains tax when making this move.

 

For the majority of investors, the logical next stage is to simply embark on the journey once more – that is, searching for another property while efficiently managing your existing portfolio. This approach will lead to a thriving and diversified property investment experience.

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Become an Expert in Colorado Real Estate Investing Today!