Which Type Of Person Are You?
Few people wake up one morning and decide that enough is enough and that it’s time to strike out their own.
The rest of us spend months, or even years, fantasizing about being our own boss while simultaneously agonizing over when, and if, to take the plunge and start investing in real estate.
Starting any business is a big step so how do you know if you are really ready?
ONE: You have access to cash
Everyone would love to independently fund their own deals. If you’re holding onto enough for a down payment on a traditional mortgage as well as money to cover rehabbing, holding, and closing costs – it’s time to get started.
If you don’t have those funds readily available, don’t worry!
You can still kick off your new business venture if your financial situation is less straightforward. Talk to successful, experienced investors and they will tell you that having access to money is often more preferable than relying on your own funds.
A professional business plan with realistic projections may be enough to attract private lenders who can lend fast and give you good terms on money you may only need for a few months. Just be sure to secure enough financing to cover not only the property, but also rehab, holding, and closing costs.
TWO: You are targeting viable markets
Do your research and choose neighborhoods with a recent track record of appreciating home values versus neighborhoods with declining home values. We call this your sweet spot. It may be tempting to choose a neighborhood where the home prices are cheap, but beware that buying cheap in these neighborhoods does not guarantee a profit.
Make sure that you’re targeting markets where people actually want to live. Buying cheap means nothing if you can’t resell the property and the easiest places to resell properties are areas where people are moving. Buy in safe neighborhoods with good schools and an easy sale is almost guaranteed.
Buy in up and coming neighborhoods. Before making a purchase in one of these neighborhoods, do your homework and make sure that it really is up and coming. What makes it up and coming? Is there a new wine bar and people are talking it up for the time being or are there big changes happening, which are drawing in an influx of new people? If you’re not seeing other flips on realtor.com or Zillow, ask yourself why.
Buy in your own backyard. What area do you know better than your own neighborhood? You know the ins and outs, the type of homes that are there, the type of people who live there, exactly what they’re looking for, and the prices that they will likely pay.
It’s imperative to know who’s buying, what they’re looking for, and, most importantly, what’s selling quickly. Are your buyers looking for boutique bars and coffee shops or safe neighborhoods and great schools?
Smart investing starts with being familiar with the market that you choose.
THREE: You know how you are going to get into and out of your first few deals
Successful investors buy, flip, and sell as quickly and efficiently as they can. Once they target a property, they’re working hard to determine what the offer should be, how much it will take to rehab or flip it, how much they can sell it for, and how quickly they can get it all done. In short – they plan.
- What’s your plan for creating a serious offer that will get the buyer to sell while leaving you with enough room to make a profit?
- What’s your plan for managing the rehab process so that your contractors can get in and get out as quickly as possible?
- How much can you sell it for and how do you plan to market it once it’s ready?
Do you have a clear understanding of how to purchase a property?
You may have used a real estate agent to buy or sell your own home but, as an investor, you’ll want to handle purchase transactions yourself.
Here are a few “Must-Knows” before you invest in a piece of Real Estate:
- Purchase Agreement: The legal contract detailing the sale of a property, including pricing and terms. No Purchase agreement means no sale so you’ll need to know your way around this document.
- Title Company: The company that will actually manage the transaction. Building a solid relationship with your title company will close deals faster.
- Financing: Traditional bank? Friends and family? Private lender? However you are funding this deal, ensure you have direct access to the money when you need it. Bad cash flow kills deals.
- Home Inspectors: Your home inspector will help you figure out what’s wrong with a potential purchase. Good ones will steer you away from bad deals.
- Repair/Rehab Crew: Who is going to do the repair and rehab work involved to raise the value of your property? The best contractors are those you already know.
Now that we’ve got that out of the way, it’s time to figure out how you will get leads. Do you have a list provider? What type of leads are you targeting?
- Foreclosures/Upside Down – Homeowners who owe more on their property than it’s worth
- Bankruptcies – Homeowners who have filed bankruptcy
- Absentee Owners – People who own a property that they don’t live in
- Tax Liens – A property with a delinquent tax lien against it
- Free & Clear - Homeowner owns the property free and clear of any mortgage
- High Equity – Homeowners who have a very small mortgage on their property
- Low Equity - Homeowners who may owe what the property is worth or are close to being upside down
- Vacant Properties - Properties that the USPS has identified as vacant
- Zombie Properties - Properties that have started the foreclosure process and were left vacant.
How are you marketing to your leads?
- Direct Mail – Yellow letters, handwritten notes, and postcards are the most effective forms of direct mail.
- Your Website – This is where people go to find out more about your company and how you can help solve their problems.
- Squeeze Pages – This is designed to convert visitors into leads by offering your visitors something of value in exchange for their contact information.
- PPC – Pay Per Click is Internet advertising which drives traffic to your website or squeeze page.
Once you’re converting leads and have a property that you’re ready to make an offer on, how do you determine your offer?
- Pull comps to support your offer
- Do a repair estimate to give you an accurate projection of how much work the property needs
- Analyze the deal to project net profit and return on investment using different purchase, hold, and sales scenarios
Once you have a property that you’re ready to sell, you need to have a plan for how you’re going to get rid of it.
- Do you have a buyers list to target?
- Will you list with a realtor?
- Will you list on other property listing websites?
- Will you canvas the neighborhood with for sale signs and property flyers?
Don’t let this overwhelm you. Real estate investing takes a little bit of planning, a little bit of know-how, and a lot of connections, which will come with time.
FOUR: You have realistic expectations
Be prepared: it’s highly unlikely that you’re going to buy, rehab, and sell your first property in a month’s time. It’s possible, but not likely.
The initial deal may take longer than you expect, you may run into problems, and you likely won’t make as much on your first deal as you hope.
Real estate investing is a learning process, so don’t set your sights too high and don’t be disappointed if things don’t go exactly as planned on your first deal.
With each deal, additional knowledge, and the right tools, investing will get easier and your business will begin to grow. Real estate investing is not a get-rich-quick type of business, but it can be a get-rich business if you do it right.
If you are ready to focus on getting your first deal done so you can move onto the next, you’re ready to get started.
FIVE: You want it. You REALLY want it.
You want the freedom of being your own boss – and are willing to accept the challenges and uncertainty that comes with being the master of your own destiny.
You want the freedom of financial independence – and accept that the road to financial independence may mean working through some cash flow challenges as the business gets started.
You want the freedom of having time to do what’s important in life – but know that getting there means sacrificing a lot of free time up front.
We all have dreamed of becoming our own boss, of having more time to spend with family, friends, and of course, making more money. Though working on your own time sounds enticing, the hard truth of being a self-employed Real Estate Investor cannot be denied; it’s hard work.
Though there is money to be made, don’t let the idea of being successful distract you from the amount of work necessary to get there. More than likely your image of a prosperous investor does not show the years of hard work leading up to their success.
Eat, breathe and sleep Real Estate Investing, 7 days a week. This won’t be forever but the 24/7 commitments will crush that learning curve.
Get ready to enter a risky, costly, and highly competitive industry. It’s not for everyone, which is why there’s such a huge payoff for those who stick with it.
The money’s coming, but its not here yet. Be prepared for some tight times as you transition into being an entrepreneur. In a few years you’ll look back and laugh about those cases of Ramen noodles.
Real Estate Investing is for those willing to sacrifice in the beginning, in order succeed at the end. With the right research, planning, preparation, and tools you will get there.
Now it's your turn... Please share with us what it was that made you realize you were ready to start investing in real estate by leaving a comment below.