With the success of many real estate gurus, true or publicized, real estate investing has become quite popular among lot of investors out there. However, many investors have no clue what they are doing, and there is no book out there that really explains how to do it. Below I have listed some helpful tips that makes real estate investors successful and if you are a self-proclaimed real estate investor, this article will help you immensely.
The long-term success in real estate investing world is dependent on quality of your relationship with other professionals in the real estate industry. These professionals can help close every successive deal faster, easier and reliably every time. The network of business professionals that you must have in your team includes real estate agent, mortgage broker/lender, contractor, inspector, insurance broker, lawyer, tax accountant etc. Investors should spend the first few years in real estate building relationships, testing professionals, finding people who deliver and building that network that can help complete each successive deal easier and easier to put together. That is only possible through utmost loyalty to your business network and you will find that over time, the strengthen of your business network will deliver amazing results. I see so many real estate investors working with too many lenders, real estate agents, inspectors etc. in the hopes of getting a deal and not missing out. Don’t focus on deals, focus on building relationships and eventually deals will follow.
It is very tempting to have every single type of real estate investment in your portfolio when you first start out however the true expertise is established when you can stick to one investment type for a sufficient period of time to gain the inside knowledge and know-how which can help you with other investment types later. Focusing on one investment type will also help you to streamline your energy and that focused energy will help with finding deals. Most investors start with rent and hold of single family houses and gradually move on to multi-family, flips and various investment types in commercial realm. When you start out, stay focused! Pick your area of investment and stay with it for number of years. Don’t run after bigger investments at first, try to build a solid financial foundation and knowledge base which will gradually lead to more complex investment types.
Establish It Like a Business
Real estate investing is a business and before you enter into your first transaction, have various aspects sorted out and set up. Here are few items to think about before beginning your journey into real estate investing:
Business Structure: Will you do the transactions under your own name or incorporate a business? Tax consequences are different dependent on your business structure.
Minimize Taxes: Sit with a tax accountant and structure your real estate investing business in a way that minimizes taxes from the start. Many investors wait until they have few properties in their portfolio before utilizing the tax professionals however it is much more costly to change structure and/or shift properties than establish right structure from the start.
Set up files for each property: Monitor the cash flows and expenses for each property in your portfolio monthly. You should be able to evaluate each property periodically and ensure that your investment is generating sufficient return. This information will also be helpful in disposition when the time comes.
Know That You Don’t Know Everything
Real estate in general involves over various different professions at different stages of the transaction and each profession employs their expertise and knowledge to complete the transaction with the best possible outcome. If you want to be successful in real estate investing, you must realize that you don’t know everything. Your knowledge will never match up to someone who is in the profession full-time and has business network out there that he/she can employ. When you start investing in real estate, don’t skip on any of the important professions. Each profession does an important job and even if it doesn’t feel that way at the time, you are getting the best outcome by using a professional.
Below I have tried to highlight important functions each profession performs in the completion of the transaction.
Mortgage Brokers: Mortgage brokers help get financing and their role becomes increasingly important as you start to acquire more properties. They know which lenders include full rental income, which lender is lenient with certain aspects and different situations etc. Find a good mortgage broker and get pre-approval before buying properties. Serious investors know each other in the profession and no one likes an investor who can’t close.
Real Estate Agents: Real estate agents contribute by finding properties that meet your real estate objectives and doing due diligence relevant to the area the property is in. Most investors know how to calculate the capitalization rates and other criteria in evaluating properties, however, if you are new to investing, your agent can help you with evaluating different properties and in finding properties that meet your objectives. The most important function of a real estate agent is to make sure you can make a certain return depending on your objectives which requires knowledge of the area, knowledge of rental market, resale value if flipping, recent sold comparatives and history of the house and rentals in the neighbourhood. If you want to seriously invest in real estate, find a good real estate agent that you can work with for a very long time.
Inspectors: Lot of investors don’t get home inspection done, however a home inspection with a qualified inspector can really open up your eyes to pending capital improvements that would be needed in the next few years and other aspects of the property that are not up to code. The average cost of a home inspection is $500 and it is a drop in the bucket when you are purchasing a property of $150,000 or more.
Contractors: If you are going to focus on flipping houses as a real estate investor, I would strongly recommend finding a contractor that is reliable with accurate judgement of costs. Nothing can make an investment unprofitable than overrun in costs or unreliable contractors that can’t complete the project on time.
Insurance Brokers: Develop relationships with insurance brokers who can help you get preferred insurance rates. Insurance is considerably high for rental properties but insurance brokers know ways to minimize premiums by including or excluding certain elements.
Lawyers: Lawyer’s services are self explanatory but believe me, there are some bad lawyers out there too. Get yourself a lawyer that is organized and get things done on time.
Tax Accountant: It is not necessary to sit with a tax accountant for every single transaction unless you are buying a different investment than what you would normally buy. Tax accountants can give you an advice regarding the best way to structure the transaction to minimize taxes considering your current situation and existing income level.
Above are some of the most important aspects that make real estate investors successful. If you could follow only one tip though, I would highly suggest No. 1 – Build Relationships. That tip alone will get you 80% there.