10 Things To Know Before You Invest In Real Estate

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You’ve seen the home flipping shows on TV and think, “Hey, if they can do it, I can do it. I can take an old, ugly, neglected house, fix it up and make big bucks!” But do you really know what you’re getting into? Yes, real estate investing can be a very profitable business and can create long-term, passive income. But before you start to look at properties, there are some things you need to know in order to set yourself up for success. Below is a list of the top 10 things to know before you start to invest in real estate.

 

  1. Have a plan – Before you do anything, you have to figure out where you want to go and how you’re going to get there. In this case, it’s determining what you want out of your investing venture – do you want to be a wholesaler? Rehabber? Landlord? How many properties do you want to have in your portfolio, in what timeframe? How do you envision getting there? How will you find buyers and sellers? Taking the time to map out a vision for your investing business will help guide all decisions. If you’re having trouble mapping out your plan, turn to your mentor or coach for some expert guidance.
  2. Find the money – As a real estate investor, you’ll need to fund your deals. Where will the money come from? Will you rely on traditional financing? Work with private money lenders? Hard money lenders? Seller financing? Having the money in place will put you in a much better position when you find that perfect property. The last thing you want to do is find the property then have to scramble to fund the deal.
  3. Find your property – How will you locate potential investment properties? What is a good candidate going to look like for your business model? There are so many ways that you can locate properties, and the method you choose will arise from your plan. Some examples can be records searches at your county courthouse, searching foreclosure listings, direct mail/marketing for sellers, door knocking, yellow letters, “driving for dollars,” or working with a professional real estate investment firm.
  4. Build your team – As soon as you dip your toe into your first real estate deal, you should be building your power team. Start to identify key people who will help support your investing goals. For example, maybe that means a trusted bird dog, private money lender, a professional real estate investment firm, title company, real estate attorney, accountant, and so on.
  5. How’s the location? – You’ve heard it a thousand times; it’s all about “Location, location, location.” That is 100% accurate with investment properties. You want to give yourself the best chance of finding a buyer or tenant in the shortest amount of time (depending on your investment/exit strategy). Examine the neighborhood for things like crime rate, vacancy rate, surrounding schools, neighborhood amenities, the walkability of the area, and proximity to mass transit. Keep in mind; sometimes the best places to invest are not in your own backyard. Sometimes a better market for investing (stronger ROI) is located in a different geographic area. Don’t let that intimidate you. By working with a professional real estate investment firm like Wealth CEOs, you can find your ideal properties in markets that have been thoroughly analyzed for their investment potential. Being willing to go outside of your market can greatly build your investing portfolio.
  6. What’s your exit strategy? – What do you intend to do with the property once you make the purchase? Wholesale it to another investor? Fix it up and sell it for retail? Fix it up and hold it in your portfolio as a rental property? You should already have a sense of this based on your overall business plan. Knowing your end game will help guide your every decision.
  7. What’s your timeline? – Depending on your exit strategy, understanding your timeline can help keep you from getting bogged down by one property. It will help keep things moving through your pipeline. This is especially important if you’re doing a rehab because during construction, you’re still incurring holding costs, so the longer it takes, the more it costs you and the longer it is until you can start to recoup your costs from either a tenant or retail buyer.
  8. What is your budget? – Understanding your budget it crucial to maximizing profits. Especially for a rehab or buy and hold, costs can easily get out of control. It is important to know the amount that you have to work with vs. the work that needs to be done so you can make decisions accordingly. Account for every dollar you’re spending and carefully track at each step in the process.
  9. Know your expenses – Since you’ve established a budget, track your expenses against that amount. In a rehab, having an understanding of repair costs, materials, and labor will be important. Don’t forget to account for unforeseen, unexpected repairs or expenses. Things will come up, so the better prepared you are for those surprises, the better you’ll be able to manage your spending.
  10. Find a buyer/tenant – Once you have the property ready to turn over, your challenge becomes finding a buyer or tenant (again, depending on your exit strategy). Ideally you have started to find a buyer or tenant along the way so that you’re minimizing any lag time between completion and the sale/rental. This ties into your marketing strategy and having the right team members in place. Remember, the longer the property sits vacant, the more money it’s costing you.

 

There are a lot of pieces and moving parts that you have to be prepared for. But once your eyes are open, you’ll be on the right track to creating your own profitable real estate investing portfolio.

 

Are you ready but feel like you need more guidance and mentoring? The Wealth CEOs team is here to help. To learn more about the options you have to build your investment portfolio through real estate, visit http://www.wealthceos.com

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