After decades in real estate investing, I’ve found that are two types of people who want to get into this business. There are those who ask about the best ways to get rich quickly. And then there are those who want to know the fundamentals of getting started and maintaining success.
Take a guess which group takes things more seriously.
In order to build your business, you need to know the real estate investing basics. You need to prepare a business plan, work hard, and work the angles. It’s not about striking a get-rich-quick miracle house. It’s about being smart and building, house by house.
That’s not always easy; real estate investing isn’t always like how it’s portrayed on various TV shows. By building things up the right way and starting with the real estate investing basics, you are building a real foundation for industry success.
There’s so much more than just the cost of purchase plus rehab equation. When you really start to add up the cost to flip a house, you see that there are a lot of hidden expenses, all of which can eat into your bottom line.
When revenue exceeds expenses, you win. The only way it can do that is to understand the true costs. Here’s how you get the numbers right.
Real Estate Investing Basics
If you’re serious about becoming a real estate investor, you’ll obviously need to know the basics of real estate investing. Below, I discuss the fundamentals, from training and tools to support. First thing is first, though: getting real with yourself.
Ask Yourself: Is This Right for Me?
Before you even get started, you should ask yourself if flipping houses is your best career move. There are a lot of reasons why people get into this business. A few of them include:
- being your own boss
- being responsible for your destiny
- being able to build up your community
- having fun in a challenging job
There are a lot of factors to consider. You have to be prepared to take on debt. You have to understand how you can come out ahead regardless of the economy. You have to ask yourself if the risks of this business—which are real—are something you feel comfortable taking on.
After that? It’s a matter of figuring out your strategy.
Create Your Real Estate Strategy
If I were to ask you what your business plan is, and you said “I’m going to buy houses for a low price and sell them for a high price,” I’d shake your hand and wish you luck. That’s the goal, but it’s like saying that your plan for joining the NBA is to “be good at basketball.” If it was that easy, we’d all be doing it.
So what do we mean by strategy? There are a few different real estate investing strategies to consider:
- What kind of job is this? Are you doing this full-time? Part-time to augment your income? Is this a retirement plan? All of this will impact the way you handle business.
- What kind of investing do I want to do? There is the classic fix-and-flip, there is the buy-and-hold to gain passive income from rent and there is wholesaling. All have challenges and opportunities. And there’s no reason why you can’t have a diverse portfolio, but you obviously need a plan going in.
- What kind of property do I want to buy? How much work do I want to put into any house? What neighborhoods do I want to buy in? What is the size of the property I want to buy? I find it is better to have your criteria set so that you aren’t casting wildly about. You don’t have to be so specific that you never find the right one, but having targets helps you keep your business plan in line.
So you have a plan. No, it’s a matter of getting what you need to really start building.
Understand the Importance of Training and Mentorship
When I started in this business, it was before the internet. There were a few ways to get training back then. There were seminars, books, and, of course, videos you could order from people with bad hair telling you the secrets to getting rich.
Thankfully, being connected with high-quality real estate investing training and education is much easier. What do I mean by high-quality? Here’s what I suggest:
- Look for people who are actually active, working real estate investors. They know the market. They’re way more about what really works than about theories.
- Work with people who care about your success. Trainers who take your money for a weekend’s worth of advice don’t typically care what happens once the check is cashed. Trainers who are part of your network care about you doing well.
- Collaborate with someone who will walk you through the steps. Lead generation, valuating houses, knowing how to buy and sell—these things matter.
You want training and education that actually walks you through how to be successful in starting your real estate investing career. And along the way, it’s great to have a real estate investing mentor.
A true mentor is someone who can help you improve your skills, find better deals, and close them. They actually get to know you and help you to develop your business. They know the markets, know what it takes to succeed, and want to help you do so too.
My favorite part of this business is talking about it with other professionals. I like being a mentor. I know its importance. Having that in your corner is a pretty invaluable tool.
Have a Plan to Generate Leads
So far most of what we have talked about is pretty intangible. Now it is time to get down to brass tacks. It’s time to actually find property to buy and create a lead-generation strategy.
There are a lot of ways that people get leads. If I were to break them into quadrants they would probably look like this.
(Note: “Quality” takes into account how ready the person is to sell or if they’re willing to sell and whether or not you have to fight through 1,000 other investors just to talk to them. It’s about potential and competition.)
|Cost and Potential||Resource|
|Paid, Low-Quality||real estate agents, paid listings, advertising|
|Free, Low-Quality||Craigslist, Zillow, passing out flyers, going door to door|
Obviously, if there were resources available within the “Free and High-Quality” category, we’d probably all be there. But there isn’t. So you have to look at your budget and see what works best for you. Be sure to consider the advantages and disadvantages.
Take advertising, for instance. Advertising always seems appealing, because who wouldn’t want their face on a bus stop? But that means you’ll have to hope that someone who is on that bus is ready to sell, or that you have become so ubiquitous that people think of your name when they need to sell fast for cash.
That gets expensive and it’s one reason why being part of a network that has national recognition and promises high-quality leads is often the best use of your budget. Especially when you are starting out. Any time wasted chasing bad leads puts you in the hole. Getting high-quality leads from the beginning can set you on a much better path.
Leverage Tools to Help With Your Finances
When you’re in this business for a long time you basically develop an internal calculator. You see a house and you start to do math in your head. What will it cost to flip this house? How much work do I have to put in? What kind of loan can I get? How much can I sell it for? What’s going to happen to this neighborhood?
But those are all estimates. You don’t want to just estimate when it comes to your finances. You need hard numbers in order to make the best investment decisions. That’s where real estate investment tools come in. A few that I find absolutely invaluable are:
- Lead pipeline management tools: Know what’s coming, what you’re working on, and what’s close to closing. It’s the best way to make the best decisions
- Valuation tools: What is your house actually worth? Are your calculations correct? Having a way to valuate the total cost of the project and a good estimate of the potential price is crucial.
- Hard money lender portals: You’re going to need hard money loans when you get started. These are designed for real estate projects. There are a lot of lenders with a lot of different rates for every project. It’s beneficial to be able to use a tool that gives me a variety of rates for entering my deal, allowing me to choose the best one.
Note on Hard Money:
Rates are determined by individual lenders based on several factors, including your history of successful deals, cash on hand, and credit. Every one has different criteria. Being able to quickly and easily compare competing rates helps you put yourself in the best spot.
Have an Exit Strategy
Great! You’ve got a house. Now what?
Now you execute your exit strategy. You do what it takes to get money back quickly, so you can repay your creditors, and hopefully, make a profit. Of course, your exit strategy depends on your overall business plan. So here are some things to take into account.
- Fix and Flip. Ask yourself: How much work do I want to put into this? Do I have a network of contractors ready to do the work? What price can the market bear? Am I selling for the right price for this area, or asking an unrealistic amount? What is my plan for finding a buyer?
- Buy and hold. How much work do I need to make this attractive to renters? What kind of rent can I get in this area? How long do I intend to hold onto the property?
- Wholesale. How quickly can I sell? Do I have a network of potential buyers ready to buy quickly?
These questions need to be answered when planning an exit strategy. None of them have a one-size-fits-all answer. Each situation is unique. And while there is no substitution for experience, you can get pretty far with the real estate investing basics—training, education, and mentorship.
Get the Tools, Training, and Support You Need
When I started, things were much more scattered. I had to start my business from scratch, pulling in the different parts to try to make a whole. But it didn’t all come together until I became
an independently owned and operated HomeVestors® franchise.
HomeVestors has been around since 1996, driving their real estate investing business with a nationally-known and trusted marketing campaign: “We Buy Ugly Houses®.” When people want to sell, they contact a HomeVestors® franchisee like me. I then get a high-quality lead, without having to fight through a ton of competition.
I also have extensive resources, both in terms of technology and support. The training, education, and mentorship is ideal for someone starting out. It’s like getting some of the best real estate investing basics in one place.
When it comes to real estate investing, if you have a realistic plan, the right tools, training, and support, you’re well on your way to achieving your goals. If you’re ready, request information about becoming a franchisee today. It’s the way serious people take charge of their new career path.