So you’ve been tempted by the world of real estate investing. You’re ready and willing to dive straight in, but you don’t have a game plan yet.
When you enter the industry of real estate investing, there are a lot of real estate basics you must learn before even looking at a sales listing.
Real estate can be a great source of income if you plan properly and put in the work. Here are the first five steps that will build you a solid foundation for your real estate career.
1. Pre-Plan Your Real Estate Investing
You can never be too prepared in real estate investing, especially in the investing world. Most major investment mistakes are the result of inadequate planning. Before you start investing, you need to determine where you’re starting from and what your goals are.
Your Starting Point
Where are you financially right now? Are you living paycheck to paycheck? Are you trying to save for retirement? Or are you already well off and looking to expand your current wealth? Knowing where you stand on the various stages of wealth will help you build a better investment strategy because you’ll be aware of your own needs and goals.
Your Goals
Plan out your goals and desires from the get go. Do you have a yearly income goal? A minimum or maximum amount of properties you want to manage? Knowing your end goal is integral to forming your investment strategy. The path of every real estate investor is going to be different.
2. Pick a Strategy
It’s a wide world out there. There are a lot of properties to buy and a lot of options for managing them. Do you want to flip houses? Vacation homes? Condos? Do you want to rent houses? Duplexes? Apartment complexes? You don’t have to stick to one thing forever, but it’s a good idea to start off with a niche and only expand once you’re comfortable.
There’s a lot to learn in real estate and biting off a manageable chunk will save you the overwhelming headache of trying to learn everything.
Once you’ve picked your niche, you’ll want to also pick your market. There are advantages and disadvantages to investing in your home market. So plan carefully before you decide where you want to lay down your roots.
3. Team Up
You can’t hack it in real estate alone. There are many benefits to going into business with a partner, and getting your partnership arranged ahead of time makes everything easier.
Even if you choose to not work with a partner, you will still need a good working relationship with a credit lender, a home inspector, and likely several agents.
Most real estate investors prefer to have a set group of “their people” to work with. You’re more likely to get good prices and trustworthy service if you establish good relationships.
4. Arrange Your Finances
Keep track of your money. Real estate takes a huge investment up front, so if you don’t have the money set aside already, you’ll likely need to take out a loan. If that’s the case, make sure you’re in a position to do that.
Is your credit score at its best? Is your credit report error-free? Make sure you have your own finances sorted out before you start seriously committing to any investments.
You likely won’t be buying and selling properties personally, either. Most people make their investments using an LLC, so you’ll want to set one up before you get too far into the process. The LLC will protect your personal assets, like retirement funds, from the potential volatility of the investment market.
5. Prepare Your Offers
There’s more to buying properties than just mailing a check. You will be expected to make offers and don’t be afraid to low ball it a little. The whole point of real estate investing is to get as good a deal as you can to maximize your profits. So before you make any offers, it’s a good idea to visualize your future with the property should you purchase it.
How much money would you likely make renting or selling it? How much will repairs or renovations cost?
Using these estimates, come up with an acceptable price range for how much you can pay for the property and still make an acceptable amount of money. Then be sure you only place offers within that range.
Next make sure you have a plan for when your offers are accepted. Inspection contingencies are your best friend here. You don’t want to be stuck buying a house that’s going to cost you more than you had originally planned, throwing off your whole business plan.
In real estate investing, it is best to put an inspection contingency in every offer you make. That way, if hidden problems are found with the property, you still have the option to back out or renegotiate.
By following these tips and getting started the right way in the world of real estate investments, you will be setting yourself up for the biggest potential returns!