Anybody can be a real estate investor. It is one of the few ways to make a good living that doesn’t require a degree, license or previous experience. Technically, every investor is on a level playing field. A new investor has as much of a chance of getting their offer accepted as a seasoned veteran. However, good number of new investors fail to make it through their first year of business. It is not due to a lack of effort or desire on their part. It is because they don’t know the basic steps. Sometimes the simple things can make all the difference. If you want to be a long term real estate success, here are five fundamentals every investor must follow:
1. Some capital is needed: While there are plenty of creative ways to use other people’s money, at some point you will need to have capital of your own. Whether you use it to generate leads, pay for an inspection or run a title search, you will end up spending money from time to time. Without a basic amount of capital in place, you can end up wasting much more down the road. You can very easily end up working on a deal for months, only to find out there were issues that could have been resolved in the beginning. Additionally, you need capital to help your business grow. Between real estate investment clubs, websites, business cards, mailing lists and other everyday expenses, there are many productive uses for extra capital. You don’t necessarily need to finance your own deals, but you do need reserves to keep your business moving.
2. Rental properties are a different animal: If you have never owned a rental property before, it may appear to be just like any other property. All you need to do is find some tenants, keep the house updated and wait for rent checks to roll in. As any landlord can tell you, this is not the case. Owning even one rental property is often much more difficult than originally anticipated for some. You may be able to handle some minor repair projects around your house, but the challenges they bring are not the same as those that come up in an investment property.
With an investment property, you need to keep your tenants happy. By making them wait for something to be repaired or replaced, you run the risk of making them upset with the property. This may cause them to feel as if you don’t really care about the property and treat it without regard. You also run the risk that they can stop paying rent if they feel too neglected. The bottom line is that you need to be on call at all times. You may be able to let things go with your primary residence, but not for an investment property.
3. Education is important: Being a good investor is a lot like being part of a team. The more different tasks you can fill, the greater chance that you can stick around. There are many different ways to be a part of the real estate business. You don’t need to be an expert in all of them. You do, however, need to be an expert in the areas you claim to be. You should be prepared to put some time in every week honing your craft. Take advantage of educational information available on websites, books and local real estate clubs. Read as much as you can about the real estate business and what trends may be on the horizon. The more you know about the business, the better decisions you will make and the more deals that will come your way.
4. Know your numbers: Numbers are the backbone of the real estate business. They tell us whether or not a property is a good deal and what our returns may be. They can help project cash flow and tell us exactly how our business is performing. One of the biggest mistakes that investors make is not staying on top of all the numbers involved in their business. You don’t necessarily need to be an accountant, but you do need to know where every expense is going. You also should be able to look at a new property and quickly know what you should offer, how much any repairs would be and what you could sell or rent it for. This will require you to establish a system for running numbers on every new property. It will take some time to master, but without knowing the numbers you may not be as successful as you would like. A few percentage points on every deal add up over the course of the year. Numbers hold the key to success in real estate. The better you know them, the easier the business becomes.
5. Lead generation is important: As a business owner, you are only as good as the business you can generate. In real estate, there are different ways to generate business. Deals will not just fall into your lap. You may be able to get one deal from a friend of a friend but this is not enough to sustain a business. You need to be able to get new leads every week. Real estate investing is a numbers game: the more properties you look at, the greater the chance of landing a deal is. Between focused mailings, email campaigns, networking and reaching out to friends and family, there are varying ways to get leads without breaking the budget. If you want to create a successful business in both the short and long term, you need to find a way to generate business.
There are plenty of things to know, but if you focus on just these five areas you will be off to a good start.