You’ve heard that investing in real estate can be very lucrative. Before you get started, here are seven questions to ask yourself.
1. Is this a hobby or a business?
Ask yourself why you want to invest in real estate.
– Do you want another income stream
– Do you want to build equity in a house
– How many sellers and buyers do you want to speak with each day/week/month
– How much time do you have to invest in real estate
– Are you working a full time job
– Are you retired looking for additional income
– What do you want to do with your time?
If you want to build a real estate investing business, then you need to treat it like a business.
Are you going to be a landlord? Then you need to determine how much time you want to spend collecting rent, maintaining the property, making repairs, answering tenant calls late at night, etc.
Or have a property management company handle the tenants and maintenance? Then you need to determine who you will hire to manage your property and how much you will pay them. Typically a property management company will charge one month’s rent to locate a tenant and then charge 8%-10% of the monthly rent for collecting the rent and answering all calls from the tenant. You still need to set aside a reserve fund for maintenance.
Maybe you don’t want to be a landlord and you want to wholesale property. Then you need to develop a buyer’s list of buyers who have the cash to purchase the house. You will still need to work with sellers to locate properties, get it under contract. You then need to get your wholesale buyer to sign the assignment of contract. And you have to make sure you follow up with the closing agent to make sure the deal is funded by the wholesale buyer and the deal closes. You will get your assignment fee once the deal closes.
Here are the questions you need to ask yourself.
– Do you want to be a landlord
– How much time do you want to put into real estate investing
– Do you want to build a business or just make some extra money once in a while
2. Do you want to work directly with sellers?
There are many investors who want to get into the real estate investing business who don’ t have prior sales experience. Yes, you can call homeowners directly and negotiate the purchase of their home, it is possible. It’s even easier when you are speaking with a motivated seller. I mean a seller that is really motivated to sell, not someone who wants to sell, wants full price for their home and just doesn’t want to wait for the all cash buyer that will pay retail price.
Are you someone that wants to help these motivated sellers? Do you have it in you to hear their stories over and over? Some of these sellers will break your heart and you will want to help them. You have to make sure that you only work with those that you can help and make a profit for yourself. Just because someone is willing to deed you their house does not mean it is a good deal.
Think about a situation where the seller has two mortgages, judgments, and liens on the property. Yes, you can work this as a short sale and get the liens removed and negotiate with the lender to get a smaller settlement for the payoff of the mortgage. You need to decide if you want to put in the time and effort it takes to negotiate the short sale and get the liens removed. I have seen investors in the short sale negotiation process with the lender for anywhere from 2 months to 18 months. Do you want wait months to close the deal?
You need to decide if you want to work directly with homeowners or have someone handle this for you.
3. Do you want to work directly with buyers?
Once you have a house under contract, it is time for you to find your buyer. The best thing you can do is to build a buyers list before you have a property. Find out where the buyers want to live, then go find a house in that area. It is much easier to find a house for a buyer than it is to find a buyer for a house.
Do you want to take calls from the buyers? They call at all hours, while you are having dinner, before you wake up in the morning, when you are driving to work, etc. Are you willing to drop everything you are doing to take a call from a buyer?
4. Where are you going to get the money?
This is one of the biggest concerns of all real estate investors, where to get the money.
Yes, you can buy a house with little of your own money. Some of the techniques to do this are:
– Buy the house subject-to the existing mortgage
– Have the seller carryback the financing in the form of a note
– Lease/Option the house
You can also build relationships with other people who have money, such as
– Private lenders
– Hard Money Lenders
– Mortgage Brokers
The biggest money concern that you never hear about is where to get the money to market your business. You can buy a house subject-to the existing mortgage. But how do you find that house? You have to continue to MARKET, MARKET, MARKET.
Marketing costs money. That is what most of the gurus forget to tell you. You hear all about how you can buy a house with no money down or little money down. What they don’t tell you is that you have to spend money on marketing to find the house, and money on marketing to find the buyer.
Before you get started, put together a marketing plan so you know how much money you need to get started.
5. Do you want chunks of cash or cash flow?
What is the reason you want to invest in real estate? Are you interested in getting chunks of cash? Cash Flow? Or Both?
What you want out of real esate investing will help you determine what type of real estate investing you want to get into.
If you are looking for chunks of cash, you have a couple of choices. Consider wholesaling or rehabbing (fix and flip).
If you are looking for cash flow, consider landlording, selling a home with seller financing, or be a private lender.
6. Where do you want to invest?
Many investors will start out in their local market because they are familiar with it and they already have some relationships in the area. It’s easiest to start local since you are familiar with house values and have access to local experts to answer your questions.
7. What is your plan to learn more about RE investing?
The most successful real estate investors are those who keep up with the changes in the industry and are constantly learning new techniques.
One of the best things you can do is find a local mentor, someone who is making money investing in your local market. Ideally they should be investing in the area that you are interested in. If you want to wholesale properties, find a local investor who is wholesaling properties. Not only will you ask them to mentor you, but they may buy some of your properties from you.
If you are interested in commercial real estate, then you shouldn’t spend your time with an investor who deals only with single family homes.
Always continue to learn about Real estate investing. There are many gurus that travel the country teaching real estate investing. Ask the people at your REIA whose products they have purchased and whether or not it helped them in their business.
First determine the niche you want to work to get started. Learn everything you can about that specific niche and create income in that niche before you move on to the next niche. Don’t get distracted by the “shiny ball” syndrome.
Real Estate investing can be very lucrative. You need to create a plan, continue to educate yourself, and continue to market for sellers and buyers.