You definitely want to plan out the process for acquiring properties. This section outlines, step-by-step, that plan.

1. Preparation
2. Financing
3. Property Acquisition
4. Property Rehab or Tenants Placement
5. Sale of the Property

Step One: Preparation
As silly as this may sound, you can actually skip this phase and come back to it later and still do fine. If you already have a property in mind and need to jump on it today, and if your decision to purchase is an informed one, then you can come back to this step after you purchase the property.

That said, the Preparation phase is actually the whole reason you should invest in real estate in the first place. In this phase, you will accomplish two objectives: Set up a Family Trust, and Create a Corporate Structure. The corporate structure (either LLC, S Corp, or C Corp) is what allows you to legally pay considerably less tax, and this is how you can get ahead. It also limits the liability in the event something occurs with one of your properties. The Family Trust allows you to protect your investments so that in your passing, your assets are passed on without incurring ridiculous tax penalties.

Ideally, you would first set up your Family Trust, and then fund the trust with your corporation and the assets held by your corporation.

Step Two: Financing
Before you go out looking for properties, you want to get your financing straightened out. This is probably the most important step in the process, because the way you finance can make or break your investment position.

The key elements of this section are Leverage, Cash Flow, Amount Invested, and the Type of Loan Product you select.

Leverage is the ability to use other peoples' money to realize appreciation. If you invest $10,000 in the stock market and your investment appreciates 10%, you make $1,000. But in real estate, if you invest $10,000 with a 95% LTV (Loan to Value) product and you realize a 10% appreciation, you make $20,000, because your $10,000 investment allowed you to purchase a $200,000 property. Sure, you had to pay $2,000 to borrow the money, which would mean you'd only make $18,000 (and pay for the total cost of the loan). $18,000 is still considerably much more than the $1,000 you would have made in the stock market.

Cash Flow is one of the hardest concepts for new investors to accept, especially when it comes to negative cash flow. On the surface, you might think that negative cash flow is bad and that PMI (mortgage insurance) is something to avoid. While it would certainly be nice to have positive cash flow and not have to pay PMI, they aren't as bad as you think. Basically, both of these phenomena are a result of you putting only 5% down instead of 20%. While you may be a few hundred ($200-300) a month in the hole, you will be realizing between $1,500-$2,000 a month in appreciation. And that does not even consider the tax benefits of depreciation and writing off the interest payments.

The amount invested is significant in several ways. Factors in deciding how much (or really, how little) you put down are:

• How much do you want to utilize Leverage?
• How much pre-tax negative cash flow can you tolerate?
• Will you accept PMI if it means you can own 3-4 times the property?
• Can you write closing costs in your Purchase Agreement so they are wrapped into the loan?
• Is it necessary to rehab the property, and if so, do you intend to hold the property for a while?

Finally, you need to select a loan product that works best for you. Significant issues are:

• If you receive a regular paycheck and have good credit, you can find loan products that are 100% LTV (0% down) investor loans.
• Are you willing to take an ARM (Adjustable Rate Mortgage) in order to lower your first few years payments?
• Why you would want a 30 year mortgage (in most cases) instead of paying it off in 15 years.
• Will your loan allow you to have the Seller pay 3% toward your closing costs?

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Step Three: Property Acquisition
Finding the right property is where it goes from being a science to being an art form. There is no exact way to locate the "deal of a lifetime." There are many, many avenues to find properties, and it is truly a specialized profession all its own.

There are many sources of "deals." Foreclosures, HUD/VA homes, Delinquency lists, and Fixer-Uppers to name a few. One way is to find a Realtor that is knowledgeable about the value of each neighborhood, and have them search each neighborhood for houses listed considerably below the market value. Once a handful of properties are identified as having potential, these properties then need to be viewed and qualified. Only once they pass this test will you even consider writing an offer.

If you are going to rehab the property, you'll need it to be a minimum of 11.5% below market value, and ideally 15-17% below market value. This is because you'll need approximately 3% to close when you buy the property, 2.5% when you close when you're the Seller, and 6% to cover the Buyer's Agent, the Buyer's Agent's Broker, the Selling Agent, and the Selling Agent's Broker. So 11.5% only covers the transaction, and it does not take into consideration you paying for carpet and paint.

Step Four: Rehab or Tenants Placement
Either you are going to rehab the house and put it right back on the market to make a quick couple of thousands of dollars, or you are going to find a tenant to pay (the majority of) your mortgage while you bide your time allowing the property to appreciate.

If you go to rehab the house, you would benefit from being introduced to contractors that you'll need to get the house back in top shape. If you choose to rent out a house, then you'll need to determine a way to find tenants, and you'll have to manage the property. Fortunately, a Property Manager can take care of these and other unpleasant issues and allow you to focus on locating more properties.

Step Five: Sale of the Property
Eventually you'll need to sell the property. One thing to keep in mind is that you're currently able to borrow as low as 5%. In a few years, when interest rates have undoubtedly gone up, you may not want to sell just because you have borrowed money at such a lower interest rate that you could never come close to it.

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