How To Articles
How to buy your first property
By
Jan 4, 2006, 11:37

In my opinion, the first property you should buy should be residential. A single family residence with a unit in the back or a duplex would be ideal. 

After you buy a piece of property, you become more knowledgeable, you get to know the community better, and as a result of this you become more interested. You start to see the benefits for yourself first and as well as how to relate these benefits to fit your particular need. 

After you've bought your first property, you won't have as much trepidation. You become established and more knowledgeable as to where the trends are going in the community. Pretty soon, you'll be able to buy a second property. When the house next door becomes available, you'll be in a position to take advantage of it.

Typically, the first purchase is not that terrific because you're coming into a community you really don't know about even though you studied it. But after you've been there a while and see what's going on, you get a feel for it and ought to be able to do a good job on your second buy.

Your second acquisition should be a much better purchase as far as the price and terms are concerned. But even with the second property, you may have to carry it for a while as the market catches up.

There are literally thousands of possibilities, but what you need to do is establish yourself in the community. You should be an active part of it and know what's going on. When you've got a good reputation and get to know people and start talking to them, you can find out who is interested in selling and discuss with them the fact that you're in the market for another property. You might be able to work out a good deal that way. Who knows, the guy down the street may be willing to extend favorable terms because he knows you personally.



One of the questions I am frequently asked is how someone can get their foot in the door and come up with enough money for their first down payment. There are a number of ways. You could save it, or borrow from your relatives, or build up enough credit to get a loan from a bank. When you have good credit, banks are more likely to loan you money because you are perceived as a responsible individual.

When I bought my first place, I was unmarried and banks in those days thought everyone who was single was a flake. But by the time I went back for my second loan, it was a lot easier because I had made all my payments on time and had established good credit.

In addition to becoming a substantial member of the community, owning real estate improves your credit rating. By definition, you're no longer a potential fly-by-night applicant. One of the best things you can get in this world is good credit. I've always had good credit and I've always paid my bills a couple days ahead of time to establish good credit because credit is worth more than money. 

Used to give my students the following advice on how to build credit. Visit a bank and become acquainted with the people there, then try to get as large a personal loan as you can. Say you can get a $5,000 loan from the bank. Take that $5,000 and deposit that money into the bank across the street and make payments from that account to pay off your original $5,000 loan. When you have the $5,000 in the second bank, borrow another $5,000 to pay off the second loan. Do not spend any of this money. 

If you discipline yourself and keep doing this three or four times, you will build up a good credit rating. Once you prove to lenders that you are a good risk and will pay your obligations on time, you may then be able to borrow a little more money and come up with enough cash for a down payment on a piece of property. You may lose a few hundred dollars in interest payments doing this, but that isn't important. 

The important thing is to establish good credit. You can use credit cards for the same purpose, but targeting a real estate lender will enhance your standing where it counts the most. Using the above strategy, you may be able to build credibility and trust with a financial institution that could finance your first property. By proving that you can make your payments on time, the lender will view you as less of a risk and will deal with you on a more substantial basis.

The biggest hindrance for many people in their twenties, thirties, and even forties is how to possibly save enough money for the down payment. These are the same people who earn a good salary, but spend their money on an expensive apartment, a new car and dining at fancy restaurants.

Their assumption is that they have established a certain spending level and don't have any money to save. They don't equate having any money in the bank with reducing their consumer spending. They don't realize that in order to get ahead, maybe they should sacrifice a little and drop their spending level.