Real estate investing might look like an easy way to generate a small fortune, but a lot goes into it. True, investing in property and structures can lead to long-term financial freedom, and it’s certainly one of the most stable investments you can make.
However, if you want to achieve success in this industry, you’ll have to put in the planning and sweat to make it happen.
Step 1: Choose Your Niche
The greatest real estate investors understand the importance of specializing in a niche. This empowers you to know the market and strategies very well before you start pouring your money into real estate. This approach will help you select the right properties and money-making tactics.
You have many niche varieties to choose from, but some of the most common consist of:
Fix and Flips:
Purchase a run-down property and make updates and repairs to sell it for a substantially higher price.
Purchase a property for the purpose of renting it out to a tenant. It can be commercial or residential. The renter will pay your mortgage with the rent payments, which builds equity into your real estate holdings, potentially without your having to pay a dime.
Scan auctions, foreclosures, and down markets to purchase homes at below-market price. Then sell them for a higher amount to other investors.
If you can be patient, you can purchase a property during a buyer’s market and wait several years for it to appreciate. When you sell it for a higher price than you paid for it, you pocket the difference.
Step 2: Figure Out Financing
Many investors enjoy real estate investing because they can leverage other peoples’ and organizations’ money to make their purchases. But this is not an inexpensive proposition.
“I will be straightforward with you: Investing in real estate long term requires substantial capital,” says Erion Shehaj of BiggerPockets. “You don’t need to have all the capital you are going to need available at the beginning of your journey. But you will need sufficient capital to get you started on the first one.”
He goes on to explain that you can invest in real estate with virtually no money down, but it’s not a sure bet. It’s better to bring some money to the table and use traditional financing or government programs to cover the rest.
Contact a lender to discuss your financial state. The institution will either deny your application because you didn’t meet the qualifications, or it will pre-approve you for a future real estate purchase.
If you’re denied traditional funding, that doesn’t necessarily signify the end of your investing career. You may turn to various non-conventional lending options if you require alternate funding.
Step 3: Define Your Wealth Strategy
This step starts with defining your goal. Most investors want to earn extra income and avoid losses, but you might also aim for less obvious objectives such as learning the trade or networking with major investors.
You’ll also want to consider whether this is going to be a full-time gig or a side job. If you’re taking the rental property approach, will you act as the landlord or hire property managers?
Your wealth strategy might also involve adopting specific roles to build wealth, such as serving as a buyer’s agent or opening a brokerage. Or you could partner up with someone rather than tackling real estate projects on your own.
Whatever your wealth strategy, write it down so you’re clear about the plan and can stick to it.
Step 4: Choose a Target Market
The first lesson you’ll learn about real estate investing is that your target market will play a huge role in your success. You can do everything right with regard to financing, setting goals, and choosing good properties, but if the surrounding economy won’t sustain real estate investments, you’ll struggle to make a profit.
Real estate investor Chad Carson says that it’s best to invest close to home if you can find a good market within easy reach. “Being local gives you the advantage of intimate knowledge of the market,” he says. “And while managing real estate from a distance can be done, it’s still more efficient and effective to be local.”
He recommends evaluating markets near you by noting the job economy, how many homes are for sale, demographics, and other factors that can indicate a good or bad market. This is all basic economics, and if you don’t understand that, you should take a refresher course or seek the help of an unbiased Realtor who does.
If you don’t spot any good local markets, look farther afield. If you have family or friends in markets that appear to be performing well, perhaps they can help keep an eye on your property and provide the support your operation needs to succeed.
Step 5: Go Shopping
You’ve lined all your ducks in a row so far, so it’s time to find purchases. Starts by building a sharp team that will help you identify good properties and build wealth intelligently.
“I always recommend starting with one of the big three players — Agent, Lender and Property Manager,” Washington state rental property investor Jennifer Beadles says. “If you are able to find an investor-friendly contact in any of those three professions, it is likely they will be able to connect you to the other two.”
She also recommends looking for a good general contractor if you’re doing a fixer upper. “Getting referrals for good contractors is key,” she says.
“I also recommend paying in draws after you’ve looked at their work. If you’re doing this from out of town, you can have your agent or [property manager] check the status of the rehab for you like we did.”
Let your team guide you in your process of finding the right property. Don’t pretend you know everything, even if you’re the most experienced person in the group; you’ll have a significantly better chance of success if you rely on your team members’ strengths.
Set 6: Make Your Offers and Negotiate
When you’ve found an ideal property, you have to come up with an offer. This can be a highly challenging step in the process, because it requires a sound understanding of the market and the ability to negotiate.
Every seller is different, so you may need to devise a unique strategy for each purchase. Be nitpicky in your negotiations so you don’t overpay.
Know exactly how far you’ll negotiate and that area(s) where you won’t budge. This level of tenacity will take you far in property investments.
Step 7: Finalize the Purchase and Enjoy Your Profits
If you’ve carefully followed all the steps thus far, you should be able to finalize the purchase with the help of a reputable real estate attorney. Do all that, and you can employ the wealth strategies you’ve set up and watch your profits roll in.
During and after the process, take notes about what you learned along the way. After you’ve made one purchase, you can apply what you learned to make the process more efficient and easier the next time. Repeat the process as frequently as you can to build wealth.
Contact Green Residential Today!
Whether you’re in need of a flat-rate Houston real estate team or a fantastic property management company, Green Residential is here to help. We specialize in all facets of real estate investing, and we’re happy to answer your questions and help you maximize your profits. Contact us today!