You’ve been thinking about investing in real estate for some time. You have read investment magazines and books, and you’ve searched online. Yet when the actual time for investing comes, you’re hesitant to step forward. Does this sound like your story?
You’re not alone. A lot of people get overwhelmed by the thought of actually starting with investing in real estate. They withdraw before even taking the first step. Let me guess what you’re most scared of–cheating and deception, right? No doubt, relationship and trust-building plays a crucial role when you consider investing in real estate. You need a trustworthy team to get things rolling smooth and hassle free.
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Get Your Team Together
Managing resources and budgeting are often listed as the first considerations when you’re thinking about investing. In my opinion, though, building trust and relationships with the key people is just as important if not more so. People often begin with the demographics and statistics of the area to judge the area’s suitability for investment purposes. But while they’re focusing on all that data, they miss out on developing relationships with key people. And without these relationships in place, fear of getting cheated on is only natural. You’re playing with a lot of money, and why would you trust just anyone to work with it?
As a real estate investor, your success depends on how good and trustworthy your team is. A dishonest and greedy team member can make your life a living hell. At minimum, it’s very important to have an honest contractor and real estate agent. These people are key professionals whose services you will need when you’re investing.
You have to do thorough research when you’re assembling your team. It’s a good idea to search on social media and seek help from real estate communities. Get references from people as to who would make a good team member. Real estate veterans are often loaded with information about where to go looking for proper professionals. Seek their opinion. Expand your network within the real estate community and get to know them. Of course, by attending real estate meetings, you’ll meet a lot of people and learn a lot as well. When you’re short listing people for your team, don’t hesitate to ask them to present their details, work experience, and references. Pick up cues from their behavior and their body language. You’ll want to note things like:
- Have they turned up for the meeting on time?
- Do they have enough knowledge about real estate?
- Are they forthcoming in giving you their information?
A High Level Step-by-Step Overview for First Time Investors
After you know how to finalize your team, here are some of the most important things you have to do before starting to invest in real estate:
1. Make a plan.
It always starts with a plan. You might not feel like creating one, but real estate investing can get demanding and complicated at times. A plan allows you to stay as organized as possible. In order to achieve both short term and long term goals, real estate investors should approach their real estate activities with a plan. It keeps focus on the bigger picture while you’re troubled with all the small stuff.
2. Evaluate your resources.
When you know where you want to go and have mapped out everything you’ll need to do it, it’s time to look at your resources. The next step in your real estate journey is about knowing and understanding where you are financially.
Assess your current finances: Investing in real estate requires a substantial amount of money. Though you don’t need a lot of money at the beginning of your journey, you need some money to at least get yourself started. After you’ve bought your first property, you can use the cash flow and whatever else you manage to save up to generate more capital for your next projects. I always stress to investors that saving $50,000–$100,000 is a considerable amount to really give it a good crack.
To assess your financial health, you just have to list all your assets and income, and then work out your expenses. This will give you an idea of how much cash is available for investing. If you have a steady source of income for the foreseeable future, you shouldn’t have a problem saving for your first property.
Loan or Mortgage
If you don’t have a substantial amount of cash readily available to invest in your first property, you can even consider seeking a loan or mortgaging. Find out from a bank if you qualify for a loan or not. Also check your credit rating. It’s always better to get a pre-approval process done from the lending institution. If your lender bumps into some issues during approval, you will still have time to do something about them. That’s not the case if you only approach a financial institution for a loan when you’ve already agreed on buying a property. Most of you will know that I’m not a big fan of mortgages and loans, but I still think it is worth the mention for those super eager to get started.
There are many investors who get into bird dogging or wholesaling in order to raise capital for future investments. Though these are good ideas, they are risky as well.
Short on cash? You can even choose to fund your real estate investment through self-directed Individual Retirement Account (IRA). Not many people are aware that investing IRA money in private equities is completely legal, according to the IRA code of 1974. However, keep in mind that real estate investments can get risky.
3. Prepare a budget.
Don’t think for a second that you’re only going to need money for purchasing a property. There’s a lot more to it than that. In fact, the list goes on and on and includes things like closing costs, mortgage payment, rent, repairs, insurance, taxes, utilities, carrying costs, maintenance, property management, vacancies, legal fees, and fees for your team. A well-prepared budget helps you plan for all the bigger expenses that you’ll incur when you’re investing. It’s important to add a margin of safety to your budget as well, as you never know what might hit you.
4. Research your market and identify properties.
First look at your local market. Does it provide enough opportunities for investing? Are people from other states willing to invest in your state? If yes, you could be lucky to be living in just the right place. If not, find out where people are investing. Depending upon your financial health, look for properties in places that allow for your budget. If you’re buying a property in the hopes of putting it up for rent, look for properties from the eyes of a tenant. What are the things that a tenant might be interested in? Searching a property this way will help you in getting your house rented sooner rather than later.
Real Estate Meet Up
For a new investor, it is crucial to network with seasoned investors, business partners, and other people from this sector. This is your chance to learn. Real estate club meetings offer a great place for doing exactly that. They’re also a great place to look for someone to mentor you and help you find your way. If you’re running into issues, you can seek help from other investors and request them to guide you through that first investment.
5. Buy the property.
The first investment is a learning process. You learn a great deal. You don’t have to begin with a big property. Start small, gain a lot of experience, and then move ahead. Use the cash flow that you generate from this property to propel you into the next one. Investing in real estate is a business decision, so stay focused on your goal and your subsequent milestones.
Investing in real estate is not as difficult as it seems from a distance. Invest some quality time in learning and gathering information about real estate. The sooner you take actions, the sooner you will know your market. This will certainly help you to realize your dream and will get you on your way to financial freedom and living life on your terms.
Where are YOU in this process? How has your journey been thus far?
Let me know with a comment!