What to do Before Buying Your First Investment Property

There are many things to do before purchasing your first investment property.

First, READ! READ! READ! Read as many books as possible on the subject. This will help you understand how to manage it before you buy one. It will also help you decide what are good properties and which ones are bad. Advertising, tenant management, accounting, leases, laws and regulations are all covered in theses readings. Please refer to my blog "Good Real Estate Books" (http://johnraymondproperties.blogspot.com/2009/04/good-real-estate-books.html).

Second, get familiar with a lease and all of its terms. This is crucial in case you have to defend it in court someday. New York State is a tenant friendly state. This means that the lease originator has to defend their lease terms in court against a claim made by a tenant.

Third, go to the NYS tenant rights web site (http://moc.springstreet.com/common/rdmo.jhtml?rdpath=http://www.landlord.com/legalmain.htm&frameset=true) to become familiar with the law of what do's and don't's you can do. An example of this is a forced eviction. You can legally throw the tenants stuff out of the apartment for only a $50.00 fine. Each offense doubles.

Fourth, type out all forms and leases so you don't have to worry about it when you acquire a property. I suggest purchasing "The Landlords Kit" - Jeffrey Taylor (ISBN: 0793158737). This will save a lot of time and hassle when things break and there is no time. Make sure you download a pamphlet for lead based paint called "Protect Your Family From Lead in Your Home" (http://www.pueblo.gsa.gov/cic_text/housing/finlead/finlead.pdf). You can also just get some pamphlets from the local paint store, lowes or homes depot. You have to hand these out by law to your new tenants along with a lead based paint rider disclosure form (http://www.eriebar.org/files/committees/LBP_rider.pdf).

Lastly, get pre-approved for your loan. In this market your going to need 20% down on an investment property. Also, pick out a good lawyer and home inspector. Learn how to evaluate an investment property using what is called "The Stack". This is a basic formula used to figure out cash flow of the property. The formula is below:


The Stack

Potential Gross Income (PGI)
- Vacancy and Collection Loss (v)
+ Other Income (OI)
--------------------------------
= Effective Gross Income (EGI)
----------------------------------
- Operating Expenses (oe)
-------------------------------
= Net Operating Income (NOI)
--------------------------------
- Annual Debt Service (ads)
------------------------------
= Before Tax Cash Flow BTCF
--------------------------------
- Depreciation (d)
- Federal Income Tax (FIT)
-------------------------------
= After Tax Cash Flow ATCF




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