Real estate investing has exploded in recent years. Everyday there are thousands of new investors all across the country. The hard reality is that not every new investor is going to be successful. Without proper education and action many will have trouble getting off the ground. What many new investors fail to grasp is that real estate investing needs to be treated like a business. Much like many other businesses there are a few basics fundamentals that are needed to be successful. These are the five core areas that you need to know and understand especially as you are just starting out. Here are the five basics of real estate investing.
- Location. Even the most casual real estate follower has heard about the importance of a good location. This works whether you are buying the property to live in or use as an investment property. It is always best to buy the worst house in the nicest neighborhood than the best house in a poor location. You can always make improvements and upgrades to the property but you can’t do much to the location. A better location will always give you increased options. This isn’t to say that you can’t make a handsome profit in a poor market but your margin for error is much slimmer. With a better location you have multiple exit strategies. If you want to rent the property for a year there will be demand that will equal higher cash flow. If you put the right work in there will always be buyers that want to move into a nicer part of town. This creates demand which will increase your sales price. When you are just starting out stick to locations that you know end buyers desire. Once you master this market you can move on to more difficult ones.
- Good Deals. Getting a good deal on your primary residence is not the same as an investment property. With investment deals you need to get them for anywhere between 60-70% of the estimated after repair value. These deals will not fall on your lap. You need to search them through foreclosures, short sales, distressed homeowners & landlords, probate, divorce and whatever other option you can think of. Once you have a motivated seller you need to make an offer that YOU feel comfortable with. It is critical that you fight the urge not to insult the seller or think that your offer has no chance of getting accepted. The bottom line is that if you can’t get the deal at this number you need to move on. You may only get one out of every ten deals you make an offer on but that one is worth it. The goal is not to just accumulate properties but good deals where you can realize a profit. If the numbers don’t make sense you need to wait for the next deal.
- Team. A good team is critical in every stage of your real estate career but particularly when you are just starting out. Your real estate agent, mortgage broker, attorney, accountant, hard money lender and contractor will directly help you find and close deals. The odds are that you will have a few bumps in the road as you are just getting going. This is the time when you can lean on your team for advice, suggestions and help. Nobody earns on the transaction unless you are successful in closing the deal. It benefits them to help you in any way they can. Not only does your team have to be on the same page as you but they need to be proficient. An experienced real estate agent can find deals and push offers through that others can’t. A mortgage broker may have access to programs with reduced money down or guidelines that work for you. A good contractor can do the right work that stands out from other homes in the area. Don’t jump at the first person that comes your way. Take your time and find the best team for you.
- Education. The real estate investing business is constantly evolving and changing. Something you thought even a few months ago may no longer be the case. It is important that you constantly stay on top of your business. There are several blogs, books, articles, meetings and groups that can help in this regard. You should read as much as you can and talk to as many investors in your market as possible. In this day and age of increased technology there is no excuse not to fully understand the business you are in. Even if you take just twenty minutes a day to educate yourself in some area of the business it will benefit you at some point.
- Action. Education and team building is important but nothing happens without action. The biggest thing that separates two investors in a given area is their ability to take action. There are many times when you may not want to want into a real estate office or talk to someone new at a marketing meeting. These are the little steps that will help you stand out from the crowd. There are many investors that have great marketing ideas but fail to act on them. They will use every excuse in the book why they won’t or can’t get started. Fighting through this fear or complacence will help you stand out from the crowd and jumpstart your business.
If you can master these five areas you will be well on your way to real estate success. There is a lot of noise and confusion as you are just starting out. Keep it simple and focus on the five most important areas.
