How To Replace Your Income With 12 Rental Properties (Part 7 of 9)
After coaching so many people through the process of buying cashflow properties and replacing their income…
I’ve arrived at a “framework” that I have my clients follow.
This 9 step process is the most logical and effective way to build your portfolio.
So far, we’ve covered:
Step #1 - Pick Your Market
Step #2 - Build Your Team
Step #3 - Getting Setup
Step #4 - Find The Money
Step #5 - Find The Deals
Step #6 - Analyze Deals & Make Offers
In today’s email, I’m going to cover Step #7:
Once you get an offer accepted, it’s super important that you check that house out from top to bottom, and make ABSOLUTELY SURE it’s going to be a good investment.
I’ll go over how to do that below.
You ALSO want to make sure that the contract you are signing (and the one you are being “assigned”) give you time to make that happen…
WITHOUT forfeiting your earnest money.
Let’s dive in.
Here are the keys to the “Due Diligence” phase of buying a house:
Review Original Contract, Ensure You Are OK W/ It - You’ll be signing the assignment contract, which is different from the original purchase contract (the one between the wholesaler and the seller), but you’ll be “assuming” the terms of the original contract, so ask to see it. Make sure the terms on both the assignment and the original contract are OK with you before signing.
Negotiate Time To Do Inspections - Things to look for on those contracts is the contract expiration date, earnest money amount, any inspection/financing contingencies, and the date the earnest money goes hard. You want at least 10 days to get your contractor and inspector in the house BEFORE the earnest money goes non-refundable. This will allow you to thoroughly check it out, and if need be, back out of the contract without losing anything (as long as you do so within the 10 days).
Schedule Contractor - Have your Project Manager schedule your contractor to get in the house and give you an estimate. Review the estimate with your PM. Did it come back as expected? Do the numbers still work on the deal, from a cashflow perspective? If they don’t, you’ll need to renegotiate the price. Show the contractor estimate to the wholesaler as your reason why. If you can’t renegotiate, back out and find a new deal. If you CAN get the numbers to work, then move on to step 4.
Schedule Inspector - Have your Project Manager schedule your home inspector to get in the house and perform a certified home inspection. Review this when it comes back, and compare it to the contractor’s estimate. Are there any big discrepancies, things the contractor missed in his estimate and needs to include? If so ask him to do so, and get the new, updated estimate.
Make Final Purchasing Decision - You now have a MUCH better understanding of what’s going on in the house, and what it’s going to take to get it renovated and rent-ready. It’s time to make your final decision (again, before the expiration of your inspection period and before your EM goes non-refundable). Do the #’s work? Will you be cashflowing at least $200/month, net-in-your-pocket? If not, you really need to renegotiate or back out of the deal. It sucks, but you don’t want to do deals with no cashflow, because the whole point is replacing your income/quitting your job, and you can’t do that without cashflow.
Those are the basics of doing due diligence on a rental property, once your offer has been accepted.
If you are interested in a more comprehensive training on how to do your due diligence, check out our 12 House Masterclass which includes not only includes a module on this, but also:
A comprehensive 50+ video training course on how to get your first 12 houses
Bi-Weekly group coaching calls with me
Access to our private, closed Facebook Group where you can ask me questions to your heart’s delight
Access to my private money lenders
My 2018-2019 Best Markets Report
Coaching Call Recordings
A “Freedom Artist” T-Shirt
And much, much more!
In my next post, I’m going to cover Step #8 to getting your first 12 houses, which is…
Closing & Funding
This is the step where you line up funding, insurance, go close on that sucker.
Look for that in my next post.