Thinking About Investing in Real Estate? Follow These 7 Steps First
There are a lot of great reasons to be excited about getting into real estate investing. Before you get started, it’s good to have a step-by-step plan to follow.
Real estate investing has many benefits. From making money to having an exciting career that you truly enjoy waking up to everyday, it can be incredibly rewarding. Before you jump into the real estate investing fray, it pays to make a plan and do your homework, so you can feel confident that real estate investing is the right career for you.
Whether you’re just thinking about getting into the business or have already dipped your toe into the real estate market with a purchase or two, follow these tips to help you reach real estate investment success.
1. Find your “why”
Real estate investing can be financially rewarding, but a lot of work goes into it. On those days where you need motivation, you’ll need to tap into your “why” to make things happen.
Finding your intrinsic motivation can help you succeed in the long-term. It creates an emotional connection to your goal and serves as a great reminder when times get tough. You might take time to journal it out and share your thoughts with people important to you. Keep this “why” at the center of your real estate investing journey.
2. Get your personal finances in order
Real estate investing relies heavily on managing capital. Before you begin you need to be able to manage your own finances. You need to study up on money management and ask the following questions:
- Am I going to invest full-time or on the side?
- How much do I have saved in case of an emergency?
- Do I have any outstanding debts?
- Does my partner support this endeavor?
- What am I willing to lose in a worst case scenario?
Confronting these questions can be scary. However, you need to know the answers to each and the implications before you get started. This might mean paying down debt first, this could mean saving up enough money for a down payment. Regardless of what your financial situation is, you need to have a vivid understanding of where you stand before incurring more risk.
3. Educate yourself
The best way to find out what it’s like to do a job is to speak with people already doing that work. There’s not just one person to talk to when it comes to real estate investing. You’ll want to connect with people in the industry in the following ways:
- Talk to other real estate investors
- Talk to real estate agents
- Join Sundae’s marketplace to look at deals
- Look at properties, both online and in person
- Attend local real estate meet-ups, like ones held by the REIA
- Read books on real estate investment
- Listen to real estate-focused podcasts
- Get deep into the nuts and bolts of real estate investing
Education is the bedrock of success. Although you’ll never run out of things to learn, this is a great place to start.
4. Determine your strategy
There are a multitude of ways to make money in real estate investing. Some markets lend themselves to certain strategies. It also comes down to personal preference and long-term goals. Here are a few of the more popular ways to invest in real estate:
- Buy and hold: single-family and multi-family
- Commercial rental income
- Flipping properties
- Managing vacation or short-term rentals
- BRRRR (Buy, Rehab, Rent, Refinance, Repeat)
- New construction
Most real estate experts recommend you focus on one aspect of real estate investing at a time. Once you master one type of real estate investing, then it’s time to expand and diversify.
5. Choose a target market
Now, more than ever, technology makes it possible to invest outside of your local real estate market. If your local market is amenable to your investing strategy, then it probably makes sense to start there. It’s familiar to you and you’ll already have a lot of the insight around neighborhoods, the local economy, and housing value. But if you live in a very tight, expensive market, it may pay to look elsewhere.
Here are some factors to consider when choosing a target market:
- Up-and-coming areas that are poised for housing prices to rise
- Access to jobs and a stable or growing economy
- Migration to this area
Once you decide on a target market, it’s time to build an all-star team.
6. Build your team
One thing’s for sure in real estate investment. You won’t be successful — and you definitely won’t be able to scale — if you do everything yourself. You’ll need a solid team to help run your business. Here are the people to start connecting with:
- Real estate broker
- Contractor or subcontractor
- Property manager
- Real estate investment attorney
- Insurance agent
- Home inspector
- Business accountant
- Lead generators
Be sure to build out your network with multiple people in each occupation to ensure that they offer what you’re looking for. Collectively, this group of people brings together a wealth of knowledge that you can learn from.
7. Create a roadmap to success
Once you’ve done your research, it’s time to map out your future as a real estate investor. Come up with a business plan covering everything from your overall vision to your financial plan to your marketing ideas to your exit strategy.
Before you invest a dime of your (or someone else’s) money, you’ll want to have a financial blueprint for making money on a deal. You might want to start with the 1% rule, the 2% rule or the 70% rule when you evaluate properties. But in the end, each real estate investment will be unique, so you need to have the numbers to make sure it’s worth the risk.
Don’t just stop at a one-year plan. Map out what five and 10 years looks like too, so you have motivation and inspiration to keep going and reach both short and longer term goals.
It’s Time to Take Control of Your Future
Once you’ve gotten in touch with your inner motivation, done a serious financial assessment, and educated yourself about the profession and where you fit into it, it’s time for the fun part — and start looking at and buying investment properties.