One thing that makes real estate so great is that anyone can do it. You don’t need a degree or a license to close your first deal. There is also no cap on the level of income you can make. As long as you do your homework and put the work in, the sky is the limit. That said, you will need to work hard to realize success. The minute you start to coast is when you will run into trouble. While you may be on the verge of just getting going, there are a few things that you should know. Here are five things that every investor should know before they make their first offer:
1. Surround yourself with a good team: It may take several deals and many years before you are really comfortable with the process. During this time, it is important to surround yourself with the best real estate team possible. Your team should consist of your attorney, real estate agent, accountant, contractor and mortgage broker. You should feel comfortable enough with them that you can reach out if you have any questions. Listen to the opinions and guidance of everyone around you. You are basically paying your attorney to protect you through the transaction. Let them review your contract and walk you through the offer. The same idea should be applied with your real estate agent and mortgage broker. You should know enough to ask the right questions, but listen to your team and let them help you. If you don’t ask questions or lean on your team for help, you may end up taking on a deal that you don’t really want to be a part of.
2. Better properties: New investors are often influenced by price. They may only have limited funds available and want to stretch them as far as they can. This can lead them into suspect neighborhoods with reduced purchase prices. Instead of looking at properties that only fit your budget, focus on properties in better areas. These properties may cost you a little more, but will have a much greater return. Regardless if you are looking to rehab or rent, you need demand from the public to make it happen. Properties in high crime or high traffic areas often lack appeal to draw in tenants. This will ultimately lead to a lower return than you anticipated. It is difficult to do when you are just getting going, but you need to pick and choose your spots. Finding better properties could require you to take on a partner or change your strategy, but it may be worth it. The goal is to make a profit on your deals and not just get a deal under contract. Buying better properties in better areas will help you do that.
3. Know the numbers: Before you get too involved with any property you need to fully understand the numbers. You should have a good idea of what they are and where they come from. If you are unsure, you should lean on an experienced investor in your area or your real estate agent. The numbers are the backbone of any deal. For starters, you need to know what your acquisition and closing costs are. From there, you should know what the sales in the area are. Look at similar properties that have recently sold, or are currently on the market. See how your property stacks up and where you think you have an advantage. It is important not to ignore the data in front of you just to secure a deal. The numbers tell the story of a property and a deal.
4. Understand the process: It is important that your vision matches the reality. If you are looking to build a patio on the back of the house, you need to make sure local building codes allow it. If you want to rent to college students, you should know if you need a specific permit to do so. Even if you have yet to close a deal, you should know the exact process from start to finish. You never want to be caught off guard with something after you take ownership. This is where you may need to talk to your contractor to see what steps would be needed if your offer is accepted. You should have a good grasp on not only what the costs would be, but what the time-frame is. Spend any down time you have educating yourself on the process.
5. Be ready to negotiate: Making an offer does not mean you will get the property you want. There is plenty of competition out there, and you need to always get the best possible deal. Sometimes this could mean making an offer well below asking price, and waiting the seller out. Other times, it may mean making tweaks to the contract when you feel you have the upper hand. Whatever the case may be, you are going to have to negotiate. If this is something you don’t do well, leave it in the hands of your attorney or real estate agent. Your job is to be ready to act and make a firm decision when the time comes. Negotiating is how you get good deals. Good deals are the first step to improving your bottom line.
Closing your first deal is something you may never forget. Hopefully this is just the first of many to come. Before your first offer is made, you should be comfortable with these five things before you do anything else.