You are determined to make a success of real estate investing. Although the business scene is intense and fast-paced, you understand that you need to build a solid base of connections and information and that does not happen in a few weeks. The upfront work to establish your business is the most important you will do. Do not rush setting yourself up, but don’t dawdle either.
How do you keep yourself moving along a track to success? If you are prepared to do your research, work hard and be persistent, the following guidelines will stand you in good stead.
Set a realistic goal.
It’s important to have a goal in order to focus your day-to-day work. Everything you do should be helping you achieve that goal. Otherwise, it’s time wasted. How about aiming to close your first deal in 60 days? That sounds like an effective motivator.
Decide what kind of real estate.
Have you been watching enough television shows that you think rehabbing properties and quickly flipping real estate is your game? Or, are you looking for longer term rental investment properties? Perhaps you see doing rehabs for rental? If you’re not sure what you want to do, think through how you see your own role in the transactions. You might want to manage a rehab project, get your hands dirty doing the work yourself, or just buy and flip a turnkey house. Whatever you decide will determine your approach to buying real estate.
Analyze the current market.
Once you have decided on the kinds and sizes of property you want, it’s time to do a market analysis. A scan of the current properties on the market will give you an idea of what is available in what part of town for what price range. Start by checking out online listings of both realtors and private sellers. Then, get in your car and drive the neighbourhoods that look promising. Check out open houses and don’t be afraid to ask questions. At this point, you are probably getting excited to get on with contacting an agent and actually buying real estate. However, there are a few more things to consider.
For any kind of real estate investing to proceed smoothly, the financing needs to be in place. Even a real estate agent who is a friend will not want to waste time showing you properties if you are not prepared to buy. Do you have a preapproval letter for a mortgage from a bank or other lender? This is the typical financing for people purchasing rental properties. Any rental income should cover the mortgage payments plus enough for contingencies and building up equity. Do you have substantial funds in a bank account or a confirmed line of credit? This is considered the most efficient, cost effective method for flipping real estate. You probably won’t have the property more than a few months even with an extensive rehab so you recover your money from the sale and pocket the profit or reinvest.
If rehabbing properties is what you plan to do, make sure you understand what the costs will be for various projects and then add a large contingency onto that amount. There are always surprises, especially in older homes, that not even the best of home inspectors can spot. Having that extra $10,000 available for a renovation can mean a $40,000 difference in profit. Plan accordingly.
Build your network.
It’s usually a good idea to develop a working relationship with a reputable real estate agent who knows what you want, but you can’t count on just that source. Getting the word out that you are on the hunt has never been easier. Make good use of social media, a website, online marketing campaigns. Once you have the experience of a successful deal or two, you will find the confidence to put yourself out there as a buyer.
Don’t even think about the bandit signs of yesteryears, often corrugated tin squares simply saying something like “We Buy Houses Fast”. They do not look professional and are illegal now in most municipalities.
Instead, put your message on a simple website. You just need one page to start with a description of what you’re looking for, your contact information and a few nice graphics. Then, you have an extra line to put on your business card. Build an email address list and send regular reminders that you are looking.
If you’re up for cold calls, phone those sellers you see online on sites such as Craigslist. Keep in touch with them. The longer you are involved in the business, the easier it will be to add to your network. Remember to reciprocate with useful information when you can. One of these contacts with experience and skills complementary to yours might become a partner some day.
Crunch the numbers.
For your financing to be realistic and adequate, you have to learn how to choose properties wisely and calculate expenses accurately. Determine all the expenses in any deal. It might be money for carrying charges and a capital maintenance reserve on a rental property or for labor and supplies for rehabbing properties.
Besides expenses, you need to be realistic about the rental income or selling price. Much of this depends on the comparables in the neighborhood. If you put $100,000 into a reno you purchased for $150,000 on a street where the comparables are only $200,000, it doesn’t matter how lovely it is, the house will not make a profit.
You know you cannot afford to make big mistakes on that first deal. Remember the game is real estate investing and you definitely want a good return on that investment. It won’t hurt you to be a little conservative on that first transaction. After all, this is your on-the-job training.
Make it happen.
You have done all your research about buying real estate. You have spoken to dozens of people in the business from agents, to contractors, private sellers and funders. You are feeling more comfortable with the process. Now, it’s time to find a property and make an offer. Don’t let nervousness hold you back after all the work you have done.
Work with a real estate agent to find a good property, making sure the numbers, the extent of any renovations and the timelines make sense as an investment. You might have to negotiate the price which can be nerve wracking the first time. Remember, you have done your homework well so take your time and make offers that make sense. If that one doesn’t work out, move on. Are you ready to close your first deal in real estate investing in 60 days? You can do it.