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Steps For Beginners To Ensure Real Estate Investing Success

By: Tom Bukacek
Submitted: 11:22PM on Wednesday 11 March 2009

When beginning as a real estate investor, you must create a basic plan and processes for your business. Unfortunately, many new real estate investors fail to view or treat their career as an investor as a business; rather they treat it like a hobby. Such a detrimental attitude will cause you to lose many potentially profitable deals! So creating a plan of action is imperative. Your plan for a successful career as an investor should have specific details, and the following are the 5 steps to making real estate investing successful: finding, analyzing, acquiring, tracking, & promoting properties.

Locate Property – Locating attractive investment properties is the first step in growing your business. There are several ways to find properties. The two most successful for me have been 1) connecting with real estate professionals or bird dogs and 2) Farming an area. Building a network of property finders is essential so motivated sellers can find you. It is also important to have a Realtor with access to comps on your team as well. Plus, they too can inform you when properties have been sitting on the market for a long time. This may be a great opportunity for you to find and connect with a motivated seller. But the most effective way is to get out, drive or ‘farm’ the area, and become familiar with properties, neighborhoods, and pricing in your area. If a house goes on the market, you should now about it immediately, you should know the price and whether or not it is within the usual price range. These abnormalities in pricing can be your ticket to finding a great deal. While time consuming, the knowledge you get with farming an area is priceless.

Analyze– Analyze the deal & explore various investment strategies. Successful investors don’t just have a plan A; they have plans B—Z! Education is key; the more exit strategies you know, the more good deals you will be able to create! Many beginning investors may want to start with only 1 strategy, like wholesaling. However, while focusing only on wholesaling opportunities, you may be missing out on short sale potentials or opportunities to purchase properties ‘subject to’. Thus, education and multiple exit strategies are imperative! When analyzing, be cautious not to fall in love with the asset value (as values can fluctuate frequently and without warning). Generally speaking, you should never acquire a property with a loan to value greater than 70%. Also, look at the cash flow. If the property cash flows, you can make money even if unable to sell as quickly as desired.

Acquire– Once you make the decision to acquire the property, you need to formalize the offer. At the minimum, submit a basic Letter of Intent LOI). The LOI is a non binding agreement that states the minimum basics of an offer, such as location, price, terms, inspection period, & date of closing. Don’t suffer from ‘paralysis from analysis’. Get the property under contract then inspect! Have your real estate investing lawyer draw up contracts that provide you with as many outs as possible. While beginners are studying and trying to get as much information on the property as possible prior to submitting the contract, experienced investors have the property under contract and then begin the due diligence process!

Track– Once acquired, the next step is to track income, expenses, and your TIME. Nowadays, it is an essentially absolute rule that you must have some type of software package in place. I was looking at a 14 plex in Phoenix, AZ, where the owner just had a receipt book to prove rent rolls. Even worse, he had no P&L or Income Statement documented. He showed me numbers on notebook paper and asked me if we wanted to proceed! Assume everything you do in property management will have to be proven to a banker. Get software and get organized. Proving your income will be the difference between being able to sell a property or keeping it forever. Plus, most of these software packages can create phenomenal reports for you that, when analyzed correctly, will assist you with the necessary information to utilize the proper exit strategy. Finally, even if you have positive cash flow, is the property keeping you from doing other deals? Your time is valuable. Many motivated sellers (such as the gentleman who was living in his 14 plex) are such because managing the property is a full-time burden and they become burned out. Don't let this happen to you.

Promote– Establish a way to have your network know about properties for rent or sale. A professional flyer is an effective communication tool. So are web sites and other tools on the internet! But probably the most powerful is word of mouth. Go to networking events and meet other people. Once a relationship is formed and trust is established, your ability to find and move deals will increase exponentially!

So how to you find people to assist you in these areas? Let’s face it, networking other investors and professionals is what makes some real estate investors successful and cause others to fail. But with a network and an effective communication and management system, you will be on your way to building a real business.

The key to successful networking is to be able to briefly tell others what you have to offer and how your services can assist others. There are 4 steps to successful networking:
1- Give a quick elevator speech to summarize what you are about, who you are looking for, and why you are a great solution. Keep this pitch between 30 seconds and 2 minutes.
2- Exchange phone numbers or business cards
3- Suggest a meeting, luncheon, or golf outing (some place where you have time to go over the details of your business
4- Look for mutual benefits

Remember, your goal for networking at most events is simple: get an appointment. This concept sounds simple, but most people grow the appointments into a sales presentation. Avoid doing this! Make your impression; gather information, make appointment, and leave. It’s that simple, and anything more is ineffective. Finally, keep you networking time per person to a minimum. Your goal is to connect with as many individuals as you are able to at these events.

In conclusion, you must have a plan, processes, and procedures in place on finding properties, software & criteria on how to analyze properties, created documents and systems to allow you to quickly acquire properties, software and resources to accurately track property performance, and ways to promote your business. Without buyers, sellers, or renters, and other specialized professionals on your team, your business will struggle and fail. So get out there, network, and get started in your business!