Ultimate Beginner’s Guide to Real Estate Investing
Starting to invest in real estate can feel exciting and, honestly, a little paralyzing. There is so much to understand! But, don’t let that stop you. You don’t need to be an expert or have any particular professional background to begin investing in real estate. More than likely, the career skills you already have will translate. Whether you are a “people-person” or an analyzer, real estate investing gives you the opportunity to let your expertise shine. However, it can be overwhelming to know just where to begin. Let’s take it one step at a time.
Beginning Your Real Estate Investing Future
Make the decision to just do it.
If you are on the fence, you’ll want to consider the pros and cons of whether real estate investing is right for you. It’s not the path for everyone but for those who commit to their own success and are willing to put in the elbow grease, the rewards can be high. Take stock of your business strengths and consider how to leverage them to create a future with more financial potential.
Select your niche and strategy.
There are so many ways to get involved in real estate— without even needing a license. Those who are more risk-averse may dip their toes in Real Estate Investment Trusts, or REITs, versus private real estate investing. However, the biggest opportunities tend to be in single-family residential houses with an eye toward acquiring distressed properties. Even in an uncertain market, it is possible to find fixer upper homes and expect reasonable returns.
Set your business goals.
Whether you see yourself investing part-time or making a full-time career out of it, you need to have a clear idea of your goals. Making a business plan [<–Link to #355] allows you to envision those goals and create a roadmap of how you are going to meet them. Write down the details of what properties you intend to invest in and how you are going to buy them. Show that you understand local market trends and the specifics of how you will buy properties with the best return-on-investment.
Expanding on Your Momentum
Learn the ropes.
You may become overwhelmed with all the options for real estate investor training and education. There are plenty of people and companies out there that want to make a buck by spoon feeding unsuspecting newbies discount property purchase knowledge at exorbitant prices. Of all that’s out there, the most comprehensive real estate investment training is provided by HomeVestors. It covers the practical nuts and bolts of the business and doesn’t leave you wondering how to actually implement your new knowledge.
Develop your network.
You’ll need a line-up of professionals to back your business. Start asking around now to find reputable contractors as well as a real estate agent. In addition, it is helpful to establish some mentor relationships when you first start out in real estate investing. Many new investors seek out real estate investing clubs to find more experienced professionals who can lend advice. Beware, however, that they are actually your competitors and will likely hold their secrets close to the vest.
Unlike other real estate investing business models, however, HomeVestors® franchisees generally work together and not against one another, pooling forces and resources for marketing and lead generation. In addition, each new franchisee is paired with a dedicated Development Agent who has experience in your regional market.
This is perhaps the biggest challenge for new real estate investors. You need to know who and where your target market is and how to let them know you are interested in their property. For instance, if you want to invest in distressed homes, you might get to know about local tax lien auctions or develop a relationship with a real estate agent who specializes in foreclosures.
Some investors buy lead lists to find motivated sellers. However, sorting through these lists and creating an outreach campaign via direct mail or even cold-calling can be time-consuming. Moreover, this strategy tends to be very competitive and has a low conversion rate.
It is always best to design a marketing strategy that makes the leads come to you directly. For some ideas about how to implement such a game plan, check out the most effective nationwide real estate investing marketing tools by HomeVestors.
Ready, Set, Invest!
Even if you don’t have cash on hand, there are lots of ways to get seed money for your first real estate investment. Many new investors leverage assets they already own, such as their IRA. Beware, however, that this requires special documentation. Others will take out a bank loan that is specifically for buying and rehabbing a house, like the 203(k) or Fannie Mae Homestyle loan. If you already have some contacts in the real estate investing world, you may be able to access hard money lenders. As a beginner, however, be prepared to show them your credibility kit.
Negotiate with the seller.
Don’t be surprised if you have some competition from other investors if it is truly a good deal. Remember, most other real estate investors are using the same lead generation strategies that you are. Unless, that is, the home buyer came to you directly, which is rare without brand backing that homeowners trust and a strong marketing campaign.
Communication is everything when trying to close a deal. This is especially true when dealing with a distressed property owner. Nobody wants to be displaced and the seller is sure to have some feelings about their difficult financial position. You will need to handle the real estate transaction ethically, offering a fair deal and showing the seller how you can help.
A real estate agent can help you handle direct communication with the home seller. When choosing an agent to work with, however, don’t just consider how much commission they charge. You’ll want to have a clear understanding of the level of service they provide and how the rates are structured.
For instance, some flat-fee brokerages will only provide certain services while fee-for-service brokerages will allow you to pick and choose the services you need. Beware that these a la carte costs can add up if you don’t know what you are doing! For true beginner investors, it can be worth paying the higher commission of a full-service agent who knows the ins and outs of closing a deal.
Secure and insure the property.
Empty houses are inviting to crooks and trespasses, so it is vital that you take the time to secure the building and get insurance with a broker who is familiar with investment properties.
Make necessary repairs.
The best investment houses don’t come “move-in ready.” You should buy at a low price and add value to the property by rehabbing so that you can achieve full market value when selling. Of course, you’ll need to put on your Project Management hat!
The most important thing you’ll need to do is hire a reputable contractor. Every renovation project has its bumps and delays, but an experienced contractor will have the resources and know-how to deal with them efficiently. This is important for keeping your project on the expected timeline and not going over budget.
In addition, you want to make sure the contractor is insured. Let’s face it, you don’t want to be left holding the bag if an accident occurs or someone gets hurt while working on the property. Make sure your contractors’ insurance covers property damage and bodily injury/accidents at minimum. And, don’t just take them at face value when they say they are insured. Be sure to verify coverage with their agent!
Implement your exit strategy.
When it comes to exit strategies, you have two choices: sell or hold. Which one you choose to pursue will depend on your personal financial goals and the strategy you outlined in your business plan.
Selling an investment property allows you to leverage the profits for your next investment and grow your revenue potential even more. Don’t worry too much about paying the capital gains tax when you sell. Your financial advisor can run you through all of the potential tax deductions available when buying and selling property [<–link to #337]. In addition, you may have the option to defer the obligation by rolling the profits over into another property through a 1031 exchange. In effect, you may be able to defer the taxes altogether if you continue investing.
Holding the property as a rental can also provides some significant tax deductions for your investment property. Generally speaking, most of your operating costs associated with your rental property can be deducted—including property management fees, if you choose to hire a company. Of course, if you choose to do it yourself, there are a lot of tools and apps available for property investors. The biggest downside to managing rental properties, however, is that you may end up with the time-consuming and costly situation of needing to evict a tenant for not paying rent.
Starting With a Solid Foundation
Once you lay the groundwork for real estate investing, the actual buying and selling of houses comes easy. You will, of course, need to start by setting your business goals, getting some training, and developing a lead generation strategy so you can find the best deals. I’ve found that HomeVestors makes it easy to overcome these challenges. Each new franchisee is provided with comprehensive training that covers just about everything you need to know to buy and sell investment houses with confidence. In addition, HomeVestors® franchisees receive ongoing guidance from a dedicated mentor and some of the best investor tools available. If you are ready to build a solid, independently owned and operated real estate investing business from the ground up, HomeVestors is ready to help. Get in touch today!
Each franchise office is independently owned and operated.