Becoming a successful real estate investor does not happen overnight. In most cases it takes several years and countless hours of hard work to achieve this goal. Even when you think you have made it you are still facing an uphill battle. If you are like most investors you are more focused on finding deals than understanding the business. There is nothing wrong with chasing deals but by knowing how the business works you will build a strong foundation for long term success. Mastering the fundamentals of the business gives you the best chance at succeeding today and for years to come. Here are the five most important fundamentals of the real estate business.
- Analyzing One Deal At A Time. Everything you do in the real estate business should be done with a singular focus. It is difficult at times concentrating on only one task at a time. Before long you end up stopping and starting several different tasks and analyzing several different deals without knowing exactly where you stand. As great as multitasking can be it can also have a negative impact. Until you have truly mastered the business you should only work on one task or one deal at a time. Every property you look at should be placed in a dedicated excel spreadsheet. You should make notes of the location, condition, current list price, repair estimates and any offer you made on the property. You should have a good idea why you passed or why your deal was rejected. You should know where you think the property is headed and what you could have done differently to acquire it. Only when you have looked at the property and deal from every angle should you move on.
- Deal Generation. You are only as good as the amount of deals you can generate. Instead of entering the business assuming that deals will fall on your lap you need a plan for generating them. Your plan can be as elaborate as a direct mail campaign or as simple as reaching out to sellers on Craigslist. Whatever you do doesn’t have to be expensive but it does have to be consistent. There will be plenty of times when you will get frustrated in the amount of volume you are getting. Like anything else you do in business the more consistent you are the better your results will be. There are literally dozens of ways to find deals or to put yourself in front of people that can lead to deals. Find a handful of methods that you are comfortable with and get going. Make the commitment to try them for a designated period of time regardless of the results. The more leads you can generate the greater number of deals that will eventually come your way.
- Understand Markets. There are many investors who will tell you that understanding markets is the most important aspect of the business. You can find all the deals you want but if the markets are poor you won’t have the return you anticipated. Understanding the market means that you have a good idea of why a property is listed where it is and where the value may be headed. Additionally you need to know everything about local crime rates, new housing permits, area schools, unemployment, foreclosures rates and current housing supply. By knowing where a market is and more importantly where it may be headed you can buy in the right areas. This will allow you to close fewer deals in better areas than the other way around. It will allow your properties to get turned over faster and maximize profit. The right market is often more important than the right property.
- Value. With any rehab property you are looking to buy low and sell high. This isn’t exactly rocket science. What can be confusing to many new investors is where you create value. It is not enough to put work into the property. You need to do the right work for the given market. Not all work and improvements you make will yield a substantial return. It is important that you study the past sales and current listings for your market. Look to see what amenities and improvements are having the greatest impact on local sales. You need to focus on doing work that buyers find appealing over work that you deem acceptable. By doing the right work you generate the greatest amount of demand that allows you to get the biggest bang for your buck. You are not looking to simply turn the property over. You are looking to always create value.
- Networking. To be a successful investor you need to network. As simple as it sounds the more people you know the easier it is to find deals. Not only does networking help in finding deals it will also makes working on deals easier and less expensive. Instead of scrambling around looking for someone to work on a rental property you can use your networking team to help find the right person. The more eager you are to put yourself out there the more people that will want to work with you. Every day you should do something to network within your local community. Between investment club meetings, networking clubs and social media groups there are more networking resources today than ever before. These contacts will become the base of your business and a source for many potential deals.
Focus on one of these areas at a time. If you are strong in just these five areas your business will be strong as well. These five areas are the foundation of any good real estate investor.
