As a real estate investor, the work you do before you make an offer is as important as what you do after. The best investors, however, are those that go in with a strategy. There are many moving parts on a deal, but there are a few core items that will shape your strategy. This strategy will go a long way in deciding what types of deals you pursue, in what area and even how long you hold them for. If you don’t have an investing strategy, you need to develop one today. Otherwise known as an exit strategy, here are a few items that should define your real estate investing strategy:
1. Financing: Much of your strategy will be based on your available financing. There is a big difference in the amount of offers that are accepted from lender financed deals and offers made with cash. The 20-25% down payment requirement may limit the number of lender financed deals available. Additionally, cash offers are much quicker in nature, and much more likely to get accepted. Using cash does not necessarily mean you are funding the deals yourself. Between hard and private money, you have more outlets for capital than you may have thought. Whatever you decide to do, you need to have financing firmly in place. This impacts everything else you do.
2. Purchase price range/location: After you know how you are going to fund your deals, you need to know what price range you are comfortable with. Your net percentage return on investment can be just as high on a $100,000 home as a $500,000 one. The biggest differences in the purchase price range are the location and the amount of work that is needed. You need to be comfortable with the price point and area you are buying in. With larger purchase price ranges, there is a greater risk of losing money. The return could be greater, but you need to do everything right along the way. Once you decide on a price range you are comfortable with, you need to stick to it. The more types of properties you look at, the easier it is to get pulled in a dozen different directions. A lot can change from one location to the next, even within the same zip code.
3. Goals: Your strategy should be driven by your goals. You may be able to get a great deal on a rehab, but if you are only focused on buy and hold rentals it doesn’t do you much good. Without clearly defined goals, you will constantly jump from one area of the business to the next; any hopes at gaining traction will be an afterthought. First, you should determine what you want out of real estate investing. It seems basic enough, but too many investors cannot answer this question. Are you looking for short-term gains or a long term portfolio? Do you want a high monthly cash flow return or does future appreciation appeal to you? How much time can you dedicate to the business? How many deals do you want to close throughout the year? These are just a few of the many questions you need to dive into before you get started. The more you know about yourself and your goals, the easier it is to tell your real estate agent they types of properties you are looking for. It also helps you not waste time on deals you don’t really want. Your goals are what drive you, and they alone will keep you focused in your business.
4. Exit strategy: Knowing what you want is great, but only if you have an exit strategy. Prior to making a single offer, you should have an action plan in place that matches your goals. Saying that you want to close and flip rehabs requires an exit strategy. Are you going to list your rehab properties yourself, or are you going to use a real estate agent? If you choose doing it yourself, how do you plan on marketing the property? If you want to use a real estate agent, how many have you spoken with so far? Acquiring the property and doing the work is a good start, but only half of the process. The exit strategy is as important, or more so, than anything else you do.
5. Assemble a team: Even if you don’t have a single deal under your belt, you need to assemble your team. Without a strong team in place, you won’t find good deals, do good work or run your business the way you want. Starting with your real estate agent, there are many important people you need on your team. Your contractor, mortgage broker, handyman, accountant and attorney are just a few of the members you need to find. Finding these people will require you to sit in local networking meetings and investment clubs. It is important to not just settle on the first person that comes your way. You need to find the best possible fit for you and what you are looking to do. A good team around you makes everything you do that much easier.
Your investing strategy should be something you are comfortable with. There are many ways to invest in real estate and you don’t have to follow the crowd. Taking the next step means starting with an investment strategy.