Tips on Finding Your First Investment Opportunity

Enter Into The World of Real Estate Investing....

Taking the first step to finally start investing in rental properties is an exciting adventure full of promise and the potential of financial freedom. That adventure, however exciting and full of promise, is also full of uncertainty, risk, and the assumption that you know what you're doing before you even start to do it. This article will help answer some of the pressing questions that you may have, along with some that you may not have thought of yet and also leave you with some questions that you need to answer yourself. Follow along and get the information that you NEED to start your journey. This article will be laid out as such:

                               1. Your Very First Decision

                               2. The Most Important Factors

                               3. Proper Planning

                               4. Taking the Leap

Your Very First Decision

I have been a licensed real estate agent for a while now and have worked with every type of client possible - from first time home buyers, sellers, seasoned investors and amateur investors. One thing that I have come to notice in inexperienced investors is this - they have no idea what type of rental they want to own and operate

I recently had an out-of-state client who wanted to own a rental property in Maine. After spending an hour talking to him, I quickly recognized that this was the case with him. Throughout our conversation he would disclose his intentions to run a summer rental - then a few minutes later he would discuss plans for a year-round rental project.

Just like starting an business, and investment properties is just that - a business, you need to have a clear idea of what that business will be. After you understand what the business will be, you need to have set goals and a set plan that you can implement to achieve those goals.

So, your very first decision to make is: What type of rental do I want to run? keep in mind that every type has its own set of pros and cons.

The Most Important Factors

Once you have confidently decided on the type of rental that you want, there are a handful of factors that are MOST important when putting a rock-solid plan together. Next, we will start to go through those factors one-by-one.

• Location, Location, Location. If you've heard it once, you've heard it a thousand times. There's a good reason for that. The location is the first most important factor for a few different reasons:
  • Just like any business, you need to know what problem it is that your fixing for your customer base and who that customer base is. Without knowing who your potential renters are, it is extremely difficult to solve their problem and thus creating a need for your rental. The only way to begin finding out who your clientele most likely will be, you need to discover where your rental will be located.
  • In order to be successful, you need to have an understanding of what it is going to cost you to get your rental up-and-running and how much it will cost to get each renter. In order to be successful, obviously you need to make a profit. The thing is, every market is different. When I say that, what I mean is, the cost of repair a building and the average rental price on a property will be vastly different in NYC then it will be Kearney, Nebraska. You need to figure out the potential location before anything else, because when it comes time to purchase a property to run as a rental, you need to have an understanding of how much it will cost vs. how much you can pull in from rent every week or month.
• The Customer. Once you have scouted the perfect location, this will help lead you to the next most important fact - the customer base. Again, just like every other business, you need to determine "who" your customer base consists of. Find the location for your rental property will help enter you into this unknown since the location helps determine what kind of customers you will be catering to.
  • A good of example of this would be, let's say you decide to own a rental in Manhattan, in NYC. Your customers most likely would be more upscale, wealthier renters who enjoy status and luxury. This is not guaranteed mind you, however, it is safe to develop a plan to cater to those types and design your rental as such.
  • Another example: let's say you decided to pick a city, but want a rental in an area with high unemployment rates, low salary averages. You might do this if you want to help build up a small town or a certain area of a city. In this case, you will want to plan your rental to have cheaper rent, while still being nice and better than the average rental in the area, forgoing some of the luxuries that don't matter as much to those types of customers.

Proper Planning

This needs to be as well planned as any other business you might open would be. There are a lot of moving parts involved that determine whether this will be a success story or a learning experience (I prefer not to use the term failure because every “failure” is a chance at a one-of-a-kind learning experience.) The following are some questions that you should try to answer prior to jumping in.

• What is your budget? How much do you have personally to invest and how much do you need to secure through third-party sources? (i.e. family & friends, conventional loans, outside investors). If you require a loan, what is the APR? how quickly do you have to finish the project to profit without using all of the profit to pay for the interest?

• What look are you going for with your rental? Historic? Modern? Contemporary? Quaint? Rustic?

• How quickly do you need to secure your first renter before you run out of funds?

• Who is going to collect the payments? You or a property management company?

The list can keep going on, but these are some good starter questions and should jump-start your brain into the correct train of thought while planning out this business. Try to answer all of those questions and then develop more like those and answer them as well. The better you plan then the more likely you are to succeed. 

Never forget the 6 P's of life:

• Proper Planning Prevents Piss Poor Performance

And the 7 P's of Marketing:

• Product, Place, Price, Promotion, People, Processes and Physical Evidence.

Taking The Leap

Now that you’ve read through this beginner’s guide to your first property investment, you should have all the tools necessary to start. Always start by asking yourself the question, “Why am I doing this? What do I want to achieve? And “where do I want to achieve it?”. Then, take into account the two most important factors as you begin planning your adventure. Make sure to plan everything as well as possible while trying to account for every smallest detail possible. Treat this as a business and soon you will have one. Now, all that’s left to do is TAKE THE LEAP.