How to Buy Your First Rental Property in 2026 (Step-by-Step)

19:57Henry Washington:And so trying to just be like, this is what I'm going to do first. I want something that's manageable, a 3-1 that's under this price point. It's got an attached garage. That's my buy box. That's great because you can really hone in and practice your skillset. So I don't disagree that going out and finding a deal makes things better. I do think just for new people, one step you can consider putting before the deal and the buy box is talking to a lender. Because I see so many new people get stuck at this. They're being like, I can't afford it. I'm like, do you know that? Do you actually know that?

20:32Henry Washington:Because there are 5 % down loans. There are VA loans. There are owner occupied loans. There are FHA loans. There are all sorts of things. There are government programs, state and city sponsored programs that help you with your down payment or your closing costs. And if you're feeling stuck, please just go talk to a lender. Like if you feel good about your buy box, go do what Henry said. But if you're feeling stuck, just talk to a lender. It's their job to help you understand what you can afford. And they will give you a number that you could go put into your buy box that you could say, I can actually afford this.

21:06Henry Washington:So it's just one thing. We don't really disagree. But that's something I think you can consider doing first. It's interesting because I think we're trying to solve the same problem for people a different way. Like both of us want you to go take the action. Yeah. Right. And you're saying going and talking to a lender will like truly let you know what you can go by and stop guessing at it or making assumptions for people. And what I'm saying is finding a deal will motivate you to go find the money. And so what I'd say to your plan is talk to multiple lenders. For sure. Because sometimes a lender will tell you no or tell you they can't do something.

21:39And it's based on their limited information about the products that they offer. Or their bank. Or their bank. And there's a million other banks out there that have a million other products to offer you. And so talk to multiple banks and get a consensus from them. And that will truly help you understand what you can and can't go do.

21:58Henry Washington:I'm so guilty of this. I've been interested for the last like six months or so of buying like a multifamily. Not huge, but like 12, 15, 20, something like that. But if you listen to my like other buy box shows where I get into detail about what I'm looking to buy, I really like fixed rate debt. I don't like commercial loans. So for a little while, I was like, oh, I'm not going to buy multifamily because I need a commercial. I don't want to. I want an adjustable rate mortgage. And like a couple of weeks ago, I was like, I haven't even talked to a lender. There are fixed rate commercial loans. I know there are.

22:30Henry Washington:But I just like in my own head was just like, oh, I don't want to get a commercial loan. And I was just being lazy. And I was like, now just go call them. I'm like, of course, they're fixed rate commercial. It's not that hard to find. I was just being lazy about it. But now by doing that, I'm like, okay, now I can make a buy box because I know what's possible. I know what the rates are going to be. I know what the rate premium is going to be because a fixed rate commercial is going to be higher than an adjustable rate. So I can bake that into my underwriting. And now I feel better about my buy box.

22:59And if you follow these steps in the order we're giving them to you, you will learn so much by talking to lenders because you'll be able to sit down and say, these are my goals. This is the strategy I'm looking to employ. Right. And here's the buy box that I'm looking for for deals. And they may have options for you for loan products that are new or we don't even know exist yet or like you had no clue exist yet. But these, especially like community banks, like their job is to help investors in their market figure out how to get deals done with them. And so they may be able to piece together a strategy for you that you didn't know as an option.

23:34For sure. Absolutely. If you've got all these things lined out for them. All right. So we agree to disagree, but it sounds like we agree essentially. on the same thing.

23:42Henry Washington:Do this in the same week. You can do it all. You can get to this. Yeah. You need to talk to lenders. You need to find a deal. All of this will be a benefit to you, especially if you've done the first two steps like we outlined. And so moving on to the fourth step, which is to analyze some deals. And I don't know if you know this about this guy, but he loves analyzing deals. I do it for fun. I do too. I'm a deal junkie. It's funny though, Because like you offer on way more than I do, but like I'll know I'm not going to offer on them and I'll just say. Throw in the numbers anyway. But yeah, I think this is this is where you go from research to action.

24:22Henry Washington:This is where you're filtering, you're doing your buy box, you come up with these great ideas. But ultimately, real estate is really it's just math and execution. And this is the math part where you just say, is this a good deal or not? And I know that sounds intimidating, but it really isn't that hard. It's really doing a little bit of research. The hard part is your assumptions, right? Like the math, the formulas are super easy, right? It's, you know, you figure out your cash flow and you divide it by how much money you invested. That's a cash on cash return. Like that's easy. But your assumptions like how much rent you can collect, the A or V of a property, what your expenses are going to be, that is hard.

25:02Henry Washington:I think that's a skill that takes a little bit of time to get good at. I think I've gotten good at it, but how do you get good at that? Well, I'd say for people starting out, you've kind of hit the nail on the head. The two things you need to have a handle on are after repair value. Which is just what you can sell for once you've renovated it. Once it's fixed up, what will that property trade for? You have to understand what that number is for your assets. But for a new person, that can be very intimidating. because the access to the data that you need to accurately get this information is behind the door that only real estate agents have the key for.

25:38Henry Washington:And comping is kind of an art. And comping without access to that information can be extremely challenging and overwhelming. So it is a skill that you have to learn. We don't have time to tell you exactly how to go do all that here. But so typically when you're new, the best way to get that information is to partner up with a real estate agent who can help you run that analysis. So understanding ARVs, that's the most important data point you need to get a grasp on when you're going to be investing. The second data point that's important and hard for new investors is renovation budgets. Not everybody who is investing in real estate has a construction background.

26:13I know I do.

26:13Henry Washington:I still struggle. And this was extremely overwhelming for me when learning to run the numbers. There are several things that you can do to get familiar with it, but it's just something that's going to take time and experience. I think that I'm not good at construction. I've done plenty of it, but some people have a feel for it. They're like, oh, you know, like I know how much this is going to cost. Like, yeah, exactly. It's like, oh, this, you know, like James Standard, our friend, you probably. I do it all the time. You have a good feel for it. I do not. But I think the best thing I've learned is just to ask other investors.

26:46Henry Washington:That is the number one easiest thing because, yeah, you can go ask a contractor, but they're building in profit and they're going to try and not all of them, but many of them are just trying to maximize their own profit. I think talking to another investor, like if I go to another market, I'm like, what does the bathroom cost you? You know, like what does the kitchen cost you? That is the most valuable thing that you can do to get those assumptions right. Because like Henry said, ARV expenses, those are tough. Rent, you can usually figure out. I don't think rent estimates are that hard, but if you can nail those two things, it's really going to help you a lot in your deal analysis.

27:19Henry Washington:And that's just like why you have a community, right? Like that's why you have Wicker Pockets. That's why you go on and talk to people and BP Con, whatever it is. Like these are the relationships that really help you get around these assumptions because they'll know they've done it. And I think one pro tip to doing just that is talking to other investors and learning about renovation budgets is ask other seasoned investors if they'll send you bids from contractors that they didn't hire. Because you'll learn a ton by reading a bid for a project renovation. You'll learn about what it costs to paint a house of a certain square footage.

27:52You'll learn about what it costs to lay flooring in certain rooms of certain types. You'll learn about - Scope of work, like what people are doing. Reading your scope of works. Just having access to those is data. And you can start to build your own spreadsheet based on a cost per square foot model just by looking at other people's bids.

28:08Henry Washington:Yeah. I mean, yesterday, Henry and I were tooling around Seattle. We went and someone, we were talking to this guy. He was like, you want me to send you my spec sheet? We were like, yeah, great. So now we can see what he's paying for cabinets for tile and for all these different things. And that just helps you orient yourself. And I think that's really the hard part of deal analysis is people hear this word analysis and they think it says math and you're like, you know, Goodwill hunting up on the board. It's like, you just go to BiggerPockets, just put it in the calculator. That part is easy. Like just go use the calculator.

28:36Henry Washington:You just have to know what to plug in. Yeah. He needs to know to plug in. That's the hard part. The other hard part I think is knowing what's a good deal. Because once it spits out a number, is that good or not? I think that's another sticking point for a lot of people. Let me just throw out a number for you. You see 5 % cash on cash return. What do you think? For a rental property. Not a good deal. Not a good deal. I'd probably take 5%. In the right market. In the right market. In the right situation. Yeah, exactly. So I think that's what people struggle with when they're new is like, is this a good deal?

29:04Henry Washington:So do you have some benchmark returns that you use either for flips or rental properties? Yeah. So for flips, I try to keep it super simple. I've talked about this before. I want to net make what I spend on a renovation. That lets me know that my risk and reward is in line, right? So I don't want to do a$200 ,000 renovation and make a$30 ,000 profit. That's way too much risk and not enough reward. That's a quick and dirty way for me to know if what I'm paying for the property is worth the effort that I'm putting into it from a flip perspective on the rental property perspective i still use to this day the bigger pockets calculator and what i'm trying to get to on my rental properties is i want them to cash flow positive or break even depending on the neighborhood that they're in so i'm okay buying a break-even property if it's in an up-and-coming area i'm going to get the appreciation debt pay down tax benefits but i'm in a different place i think but for for most people like if you can get somewhere between seven and 10 % cash on cash return for a rental property, you're probably doing very well.

30:09Henry Washington:Yeah, that's good in today's arc. I agree with you. I will take anything down to even like a 3 % cash on cash return if it's in a great neighborhood that I know it's going to be growing. Again, my strategy, long-term. I'm not thinking, like this is why your goals are so important because if my goal - Your money later. Yeah, exactly. If my goal was I want to retire in five years, I would be only doing 10, 12 % cash on cash returns deals. No problem. I'm like, hey, if I'm buying a property that's in great shape in a great location, the cash flow is probably not going to be amazing this year. But it's still going to be in great shape from 10 years.

30:45Henry Washington:Like it's going to be a good property. Location's still good. The condition of the home is still good. And rents have gone up and my debt is fixed. Then I'm getting my cash flow. So I'm willing to do that. The way the number I use is I want my total return. So I add up my cash on cash return, my appreciation, my amortization, my tax benefits, and any value add I do. And I want that to be a 15 % annualized return. That's a little less than double what the stock market average is. And to me, that's worth my time because I don't put as much time into real estate investing as you do. But I still spend 20 hours a month on my real estate portfolio.

31:22Henry Washington:That's more than stock investing. I want to get paid for that. That's an incredible return. And at 15%, just so everyone knows, there's a little rule of thumb here, your money will double every five years. For those of you who are still around in this episode, that was your reward for it. That's a phenomenal calculation to be able to run that most anybody can use and do immediately. So congratulations for sticking around. Thanks. That's why he is the co-host of the BiggerPockets podcast. Yes, it's true. But if you think about this for a minute, Michael's 15 years. 15%, your money doubles in five years.

31:58Henry Washington:Then it doubles again. So you're at 4X. And then it doubles again. So you're at 8X. So by doing 15%, which is very achievable, this is not crazy numbers. These are deals that I can do without worry. You know, like I can do this pretty simple. Things that you can find on the market. Things on the market. I can 8X my money in the next 15 years. Think about that. And it's an unbelievable value proposition. And so that's how I think about it. And the 3 % cash on cash return, honestly, it's not because of the cash. It's like that just gives me the cushion. I'm very conservative with my expenses, but it gives me even a little more cushion to make sure that, like, I have a bad year.

32:36Henry Washington:You know, I can pay for these kinds of things without coming out of pocket. I think that's the thing people need to understand when we're talking about net returns is both you and I underwrite extremely conservatively. I'm scared. extremely like the scenario in which that my properties perform like i underwrite them is probably pretty low they probably all perform better than i underwrite them oh all of my do but that's my goal why i do that's 100 yeah i i someone sent me a deal i was showing you this the other day in detroit yeah they did this the the agent sent me really good rent comps all these things like it's going to be 2400 i'm underwriting like 2100 you know like i just immediately discount all of it.

33:14Henry Washington:Not because they're wrong, but because I want to see the worst case scenario. Worst case scenario. Yeah. I want to see the worst case scenario. And then it works. I'm like, great. All upside. 100%. Yeah. All right. So now we've given you some benchmarks and some rules of thumb about how to identify what's a good deal. But then you got to go. You got to go get it. This is your territory. So I'm going to turn this over to you, but we got to take a quick break. We'll be right back. People love to call real estate passive income, which is interesting because most of the investors I know are very busy.

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37:22Henry Washington:Welcome back to the BiggerPockets podcast. Henry and I are sharing our seven steps to getting from where you are today to buying a rental property. We've gone through our first four, which first was setting your goals. Second was strategy slash market. That was a little kind of a hybrid. Third was lenders and deals, another hybrid, but go out and figure out what you can actually accomplish. Fourth was analyze. Fifth, making offers. I feel like this is an underrated part of real estate investing. And in the market today, it is more important than ever. So absolutely. Take us to school. I feel like this is where people are falling short right now because it's not that people don't have enough leads for deals.

38:01It's that people aren't making enough offers on the leads that they have. And I think this all like I think this all blows down to psychology. I think people are just scared of rejection. And so they don't make enough offers. and because we know as investors that our offer, especially if you're making offers on on-market deals, that the offer that we need to make for the deal to pencil based on the analysis that we just talked about how you need to run, we know that that offer is going to be substantially less than what people are asking for. They're going to be disappointed. And so we make, again, we make decisions for other people.

38:33We go, ah, I'm not going to offer on this deal. They want 300 ,000. I can only offer them 125. So we go, there's no way they're going to take that and we don't offer. And what we have to do is get our personal feelings out of the equation. And we have to learn how to make uncomfortable offers. Or as I like to put it, we have to learn how to make disrespectful offers respectfully. There's a way to make your offer on your property in a way that shouldn't put somebody else off. Now, we can't control how somebody else reacts to our offer, but we can do it in a way where it makes sense. So, like, I made 12 offers on on-market deals last week.

39:09Here's how we did it. we did verbal offers and the verbal was just a text message and we created a text message script that was kind and my agent sent this to the agents listing the properties and it said hey i have an investor client he would like to make an offer on 123 main street it is going to be lower than what you're expecting but what we can offer you is we can close it in seven to 14 days he won't ask your client to fix a single thing. We'll take it in as is condition. And we will make this a very seamless and easy process for you. And then we say what the number is going to be. Out of those 12 people, two of them replied with counter offers.

39:49And one of them said, hey, my client actually owes XYZ on this property. So we couldn't take that offer. Could they come up to this? I couldn't. So we said, no, thank you. The other one was listed for 200. We offered 125. They came back at$150 ,000. I said, let me go see it. I ended up offering$135 ,000 and they took it, right? Like all from just sending a text message or a verbal offer. And most people would have said, they're listed at$200 ,000. They're not going to take your$125 ,000 offer. That's not for me to decide. We just figured out a way to do it respectfully. I think we just have to get comfortable being a little uncomfortable.

40:22And so if you're new, it's a conversation between you and your agent about what's a way that we can do this that makes sense, right? That worked for my agent. My agent said, look, I don't want to write up all those offers to them just get rejected. That's a lot of my time. I said, that's fair. So what's a way that we could do it that would take less time? And that's how we ended up with the text message rule offer.

40:42Henry Washington:Yeah, I think it just goes back to what we always talk about, just having real estate being mutually beneficial. I think some people might say, hey, you're offering them less, like you're trying to screw them over. But I don't see it at all that way. When someone lists something on the market, they say, here's what works for me. And by you reacting to that, you're saying, that doesn't work for me. Here's what would work for me. Does that still work for you? And they have that option to say yes or no. That's the whole point of a market is for people to have these conversations. And so not on every deal, but on some deals, there's going to be a number that works for both of you.

41:16Henry Washington:And that's what you're searching for, right? There are some times they're going to say, no, that's fine. That's okay. There's sometimes they're going to say yes. And that's even better because apparently you have met their conditions. I think I told you the other day, I was working on one of my first flips. I took an under-offer, under-asking offer, still hit my target. You know, like, still buy for me. So it's just up to you to have that conversation and to initiate it. It's the seller's decision whether they're willing to take that offer or not. And when you're making offers on the market, the only way to figure out if a seller is willing to take less is to offer less.

41:50Like that's because there's intermediaries in between you and the seller. It's not like where you're making offers off market where you have more information and you can you can do that. And if you're making offers off market, you still have to be able to do the same thing. You have to be able to make an offer to people at what may be lower than they're expecting. I do this all the time, but I do it very respectfully in off market deals. And I have a whole framework for doing that, which we can go into in another episode. But the point I'm trying to make with this step of making offers is you've got to get comfortable with a little uncomfortability and figure out a way to make the offer that makes sense to you and not be so concerned with how it might be interpreted by the person receiving the offer.

42:34Because at the end of the day, they don't have to sell you anything. It's a business decision. It's up to them. You're not taking advantage of them. And the same people mad about you making lower offers than what people are asking on the market are the same people that are like lowballing people on Facebook marketplace for stuff. So it doesn't matter. No one's saying the same. Exactly. You're willing to do it in other areas. Right. You can do it here. Yes, you can. All right. So we've got the goals. We've got the strategy. We've got the market. We've got the money. We've looked for the deal. We've analyzed it.

43:06And now we've made an offer. What the heck do you do next?

43:09Henry Washington:Sign the piece of paper. For a close, sign the piece of paper, right? I mean, no, you got to close. I'm not going to get into that here. It's pretty easy. They're going to sign someone, an escrow agent is going to figure this out for you. You're going to figure out how to close. That's not bad. But then I think your first like 90 days are pretty important as a real estate investor. How are you going to maximize and execute your business plan? I think that's really what you need to focus on next. Because when you go out and buy your deal, when you create your buy box, you should have a plan. Like you don't just buy and then you're like, what now?

43:42Henry Washington:Right? If you're going to be a short-term rental, you got to jump into furnishing that thing right away. You need to figure out your management strategy. You need to put your property to this place. You're going to do a BRRRR. Hopefully during the closing period, you were already getting bids. You were figuring out your scope of work. Now it's time for you to go execute. I think this is a time where you don't think about your next deal at all. At least in the beginning, right? You did not think about your next deal. Don't think about your taxes. Don't think about, I mean, honestly, this is bad advice, but I wouldn't even think about setting up the perfect systems.

44:14Henry Washington:I would just say go and do the most important thing you could possibly do. If you're doing a renovation, nail the renovation. If you have a stabilized property, screen your tenants well and find a great tenant who's going to be happy in your home. Go do that. Figure out the number one most important thing and do it the second you sign that piece of paper. Absolutely. I couldn't agree more. Execution and timing is everything when you are operating a real estate business because literal time is money. Because if it's a rental property, the longer it's not rented, the more it's costing you. If it's a flip, the longer you're holding it, the more it's costing you.

44:50So you do. You have to figure out what is the immediate next step that I need to do, and you've got to go execute against that step. I would say the thing that I would encourage you to do is to document as much as possible about what you are executing when you're getting started.

45:06Henry Washington:I wish I had done the same thing. Because then I just made it up again the next. Because you end up repeating things that are that are not beneficial to you. We're all going to end up wasting a lot of time doing things that aren't that important in your first deal. you're going to do things that you hate doing that you're going to wish you would document and so you have a process for bringing in somebody else to do it next time just you know how many times i waited until closing day to get insurance on a property and like like because i always forget i forget for the utilities yes that's right i always forget so if you write these things down the next time you're doing a deal you'll be able to be a little more proactive and save yourself a lot of time and effort like just learn from our mistakes just literally every step you do write it down.

45:50And then that way you at least have an order of all the things that you did and you can start to eliminate some of those steps or pre-plan some of those steps.

45:56Henry Washington:Totally. Yeah. I think, you know, executes the right word. I think the other way this word gets used in different contexts in real estate, but it's just like stabilize, get in there and like own it, right? Like you, you have your bills set up, you have your tenants in place. Like that's what you need to focus on. I feel like when you arrive in a new place on vacation, you like, go get your bearings, figure out where you're going to sleep you put your bag down you kind of like own the whole you know like you feel comfortable then you can start making decisions i feel like that's kind of what you need to do in those first 90 days it's just like get your bearings check everything out make sure you feel comfortable then you can go into the optimization then you can start doing sort of like the asset management piece of it yeah but you got to just get in there and take control essentially And also, I would be figuring out who's going to be on your team for the long term, because you're going to start executing and that's not all going to be you.

46:51You're going to have contractors. You're going to have subcontractors. You're going to have property managers. There's all these people you're going to have to engage with. Like, keep track of who you like working with and who you don't like working with, because honing that team in is going to help you be more efficient as you're going forward as well. These are all things that I probably should have did a better job of when I first got started. Because all we're trying to do when you get that first deal done is exactly what we're saying, like keep your head above water. So just take some time and document this process and document who you're working with and whether you enjoyed working with them or not.

47:25Because it's going to like your team is everything as you continue to execute going forward. And the best operators I know have great contractor and business relationships who now basically do all these steps for them without them having to spend a lot of time operating these deals. For sure.

47:44Henry Washington:All right, let's move on to step number seven, which is after you've executed, stabilized, gotten that property, you figure out what's next, right? Absolutely. I feel like that's kind of like you take stock of what you did, right? This is where all those notes we just told you to take come in handy. because you're going to want to go do more deals, right? That's probably going to be in your goals that you've set up in the beginning. But now you've got some experience and now you've learned something. And what you may have learned could be that you need to relook at your goals. You may have hated what you just did.

48:17That's a great point, yes. Right? Like my goals for when I first got started were far and away different than what they ended up being after I got a few deals under my belt. You're just going to learn a lot about what you planned on executing and what you actually executed against. And you're either going to get better and more efficient at the thing you currently executed against, or it is okay to go back to your goals and say, nope, it's not this. It's the, I have to try something different. This is not, it didn't turn out like I wanted it to turn out. I didn't enjoy it at all, right? That is okay.

48:48Re-evaluate your goals and then decide, do I continue to execute on what I just did and do it better? Or do I need to start fresh? That's okay.

48:59Henry Washington:Yeah. I think whether it's your goals, your strategy, your market that changes, it's okay. But figure that at the end. I don't think you should be tinkering in it. Like for me, I did a short-term rental. I didn't really like it, to be honest. I'm okay. I would do it again. But it's not like, oh, I'm going to go out and do a lot of those. I do strategies right now. I literally never heard of when I started investing. I didn't even know it was a thing. You add that in once you sort of take stock. You know, I lend. I never thought I would do something like that. I never thought I had the capacity to do something like that.

49:29Henry Washington:So I think it's just really important to say, like, here's what you're good at. Here's what you like. For me, I like rental properties. I don't mind property management. I like interacting with people. I'm totally fine with that. But I don't like doing off-market deal finding. It's not something I like doing. So I'm not going to do it, right? And so I'll build my portfolio. I'll go into my next one. Think about that. You're probably the opposite. You love off-market deal finding. But there's probably something I do that you hate. So it's just that's what you got to do. Well, I'm doing this entire process right now.

49:57but with new construction, I'm building my first ground up new construction. And so I am literally documenting the entire process because if I decide this is something I want to grow and scale and do, I want to get better at it, especially this pre-construction phase, which has been a nightmare for me. And so I need to learn how to become more efficient at that if I want to get better. But at the end, when I'm done, I'm going to take a look back and say, all right, do we truly want to do more of these? Was it fun? Was it profitable? Was it worth all the time and the effort? These are questions I don't have answers to yet, but as part of this exercise, it's exactly what I'm going to do when I'm done.

50:32All right. Seven steps. Seven steps.

50:34Henry Washington:Let's see if I can remember them. What do we got? We got goals. Then we had strategy slash market. Then we had deals slash talking to a lender, analysis, offers, execution, and then evaluation. That's all it is. I mean, it is a lot of work. It's work. You got to go out and do something. No one's going to hand this to you. You got to go absolutely and do it. But these are steps that everyone can follow. That's what I follow in every single deal. It's not like it really even changes. You still just do the same thing. Even if you've done one of these, you've done a hundred. Yeah. And it starts to just work on autopilot as you build more systems and a team and have more processes.

51:13It gets easier. I know that sounds overwhelming when you first get started, but a lot of this stuff, we do on our slate. I mean, I analyze deals for fun. Like I said, I made 12 offers last week. That's awesome. Yeah. Yeah, all of this gets better the more experience that you have. But I think this framework is absolutely a framework that you can follow and land a deal. Well, thank you so much for joining us on the BiggerPockets podcast. I hope that these steps and this framework is valuable to you. This is truly the things that Dave and I are doing every day in our portfolio. As always, leave us your questions down below or let us know what framework you follow when you are doing deals in your market.

51:51We would love to learn more about that. Thank you so much for watching. We'll see you on the next episode.

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