How to Become a Real Estate Investor
If you are thinking of becoming a real estate investor what you need to know is that real estate investing is not as easy as you think it may be. True, it is one of the best ways to become wealthy, but it is a challenging business with a steep learning curve and many nuances. To reap the rewards of real estate investing takes lots of planning, research, skill and time. Real estate investing can be broken down into 8 simple steps that you can use in order to buy your first property. Once you master these steps you can grow your portfolio and become a success as a real estate investor!
Step 1: Get an Education in Real Estate - Investing in real estate is complicated and many people exit the business as fast as they enter it because it is difficult to figure out. This is a good thing because it leaves more investment opportunities for those who are truly willing to put in the time and effort. The first step to becoming a real estate investor is to learn the ins and outs of the business. To be a success requires that you first gain an understanding of the industry as well as the potential dangers of the business. Before you buy your first investment property, you need to have knowledge about the housing market as well as knowledge about homes and home financing options available to real estate investors. There are different strategies for beginning investors versus seasoned professionals. In addition to that you need to be aware of the risks involved in investing, particularly for beginners. If you have saved your money to begin this new endeavor, you certainly don’t want to lose it on your first deal. It is also very important to stay up to date with the regulations, laws and economic trends that effect the real estate business.
Fortunately, there are many real estate resources, books, coaching programs as well as “Youtube University” that can aid you in learning what you need to know before getting started.
Step 2: Build your Real Estate Network - For someone learning the business from the ground up, you will quickly realize that it is extremely challenging. Given that real estate is a people business, most successful investors are people who have built their own real estate network. The sooner you realize this, the better foundation you will have when starting out.
A good network provides you, the investor, access to support and creates better investment opportunities for you no matter how long you have been in the business. Why risk your time and money tackling a problem on your own when you can call upon a member of your network to share their expertise? By tapping into other people’s knowledge and experience you can get to the answer more quickly which is certainly worth the cost of doing so. Typically, a real estate network should include:
A mentor to help you focus on the important aspects of becoming a real estate investor based on their experience
-A real estate agent to aid you in finding investment properties for sale and close deals
-An accountant to handle the tax issues associated with real estate investing.
-An attorney to keep you up to date with the laws and regulations in the housing market
-A really sharp home inspector to look at your property choices for defects, mechanical or structural issues that may cause problems that will cost you money and affect your bottom line An insurance agent who can calculate a suitable replacement cost and let you know the cost of insurance before you buy.
Step 3: Create a Financial Analysis + Plan When you are a real estate investor, you will forever be dealing with numbers. You will need a system to analyze a potential deal and the finances necessary to make it happen. You should set short-term and long-term goals before buying any property. This will aid in your planning and establish a decision making criteria to determine whether or not any property is a good investment. It will also keep track of your budget which is vital to making money in real estate. Issue number one for most real estate investors is finding the money to do the deal. Whether or not you have a lot of money or very little money, you can still invest. Having a financial analysis tool will help you find the best way to finance the property and how much you can afford to buy. There are financing sources such as mortgage loans, private money lenders, hard money lenders, etc. There are even ways to invest in real estate with no money down! This includes seller financing, buying a multi-family home and living in one of the units or spotting opportunities for other investors and collecting a finder’s fee. Whatever your financial goals may be, you should formulate your own real estate business plan to assure that your investments will deliver the desired results. A business plan will help you stay focused on your goals rather than on any minor setbacks. It will also allows you to obtain the desired end results of real estate investing which are profits, equity and real estate holdings which generate positive cash flow.
Step 4: Choose the right Investment Location In real estate the location of your investments are of paramount importance to the success or failure of your business. For this reason it doesn’t always make sense to buy investment properties in your own backyard as the local housing market may not be as profitable as other areas of the country. The features to look for in identifying the best real estate investments include:
Tenant occupancy and vacancy rates - Current market conditions such as population growth, unemployment rate and mortgage rates
Home construction trends and the opportunity for development
The market’s real estate appreciation rate over time Property prices, rental rates, and the ratio of price to rent
Researching a particular real estate marketplace before purchasing a rental property there will enable you to predict the future of your investment. Successful real estate investors always pick a location strategically and look at all of the variables and not just price alone. Experienced investors understand that a good investment can be out of state if that locale offers better return or opportunities for cash flow and appreciation.
Step 5: Decide on Your Investment Strategy - There are several proven ways to profit in the real estate business. You can purchase a home or building and rent it out. You can rent it out as a vacation home or short term rental situation. This buy-and-hold strategy can earn you long term appreciation over time. You can also do a fix-and-flip where you can “buy low”, do the work and sell it at a profit. There are also investment strategies which include the purchase of REITs, wholesaling, and house hacking your personal residence. There are many ways for a real estate investor to profit from real estate. The best idea to narrow your focus to one strategy at the beginning of your career. Some new investors believe that renting out vacation homes and flipping houses, for example, will bring them success sooner rather than later. They usually find out the hard way that each of these aspects of the business is extremely nuanced and risky and that mistakes can quickly end their career. Given that the learning curve is steep, it is recommended that you take the time to learn the business and build your level of competence in whatever strategy you choose. This is essential to your long-term success. As a beginner, trying to master multiple strategies at once will only add risk, not to mention stress and that dynamic will not make you a millionaire real estate investor. Once you have mastered your first investment strategy, you can learn and master another one as a means to diversify and build your real estate investment portfolio
Step 6: Find the Perfect Investment Property - After deciding on the right investment strategy for you, it will become easier to look for properties in the appropriate housing market that works best with your investment strategy. Another idea is to narrow your search to a particular type of property you want to buy such one, two and three family homes to rent out traditionally. Maybe you would rather purchase a condo or a beach house to rent out as an Airbnb. Or maybe you would rather be a house flipper and be looking for an inexpensive, distressed home to fix and flip. In either case, your budget and investment strategy will influence the type of property you will be looking for. There are many ways to find available homes to buy. Be mindful that not every home you find will make for a profitable investment. In order to buy the right property, you need to do a careful analysis of the property and the marketplace. This will allow you calculate the return on investment that the property will potentially generate, which is essential to every successful real estate investment.
Step 7: Conduct an Analysis of the Rental Market - This step is extremely important if you are investing in rental properties. Ideally you want the property to generate a positive cash flow. As such, your rental income needs to be high enough to cover the costs of doing business and net you a profit margin that goes into your pocket. A rental market analysis (RMA) is an essential step in this process. This will help you to determine whether or not that particular marketplace is a good area for investing in rental property. Most property investors look for the average rent in that housing market and compare it versus the costs of other properties. If the result of the rental market analysis is positive (in other words average rents are higher than average costs) then an investment in that rental property investment should generate a positive cash flow.
Doing this analysis prior to buying the property will help you ensure profitability and avoid mistakes and surprises after the deal is done. You can also do a rental market analysis after buying in order to determine a competitive rental price to charge your tenant. .
Step 8: Be a Professional Property Manager - After following all of the above steps, you are ready to buy and manage a rental property. Property management involves a number of tasks including finding and screening tenants, collecting rent, maintaining the property and doing necessary repairs. If you don’t want the property to sit empty, this is where you should focus your time and energy. While managing an investment property is not rocket science, you may not have the experience, time or inclination to do so. Many new property investors would rather use a property management company rather than do it themself. If you choose to go this route, you need to add management fees to your rental expenses as part of your cash flow analysis. If you can afford to, look for a property manager to add to your network of trusted advisors. The Bottom Line Many beginners spend too much of their time researching and not enough time looking for opportunities. Be Proactive! Do your homework, but don’t waste time getting started in real estate investing. When you feel that you are ready move up to better investment opportunities, you can sell or refinance a property and repeat
step #9. You should keep doing that until you build your real estate empire - Before you know it you will reach financial freedom. Start Your Investment Property Search!