Regardless of what type of investor you are, there are many different ways to make money in real estate. Between wholesaling, rehabbing, rental properties, tax liens, mobile homes, condos, multifamilies and more, there is a niche for every investor. If you are just starting out, it can be intimidating and a little scary not having a clear road map to follow. Instead of trying to get involved in every deal, there are steps you can take to simplify this process. The first thing you need to do is to determine which type of investor you want to be.
Determine your budget and your goals. A goal should not be to make as much money as possible, as it is too broad. Instead, try to determine your time frame, exit strategy and risk vs. reward tolerance. Most of these will be based on your budget and access to funds. The types of deals you get involved in will be different if you have private money behind you or if you are investing your last $25,000. If you are looking for bank financing, find out how much you are approved for. In most cases, this number will be dramatically less or more than you may have thought. Your financial picture and your goals will determine what types of properties and locations you can buy in.
Once you have settled on a budget, lay out your path. How do you plan on pursuing your goals? Here is where your personality will factor into your investing career and ultimately tell you what kind of investor you are. If you are a people person and are comfortable networking yourself, you may want to consider wholesaling or finding someone to partner up with. If you have a marketing background and you find mailings and lead generation fun, you can market distressed homeowners and get leads in that manner. Regardless of your personality, you will need to be able to generate deals and network yourself. Having an idea of your goals is a start, but without a plan of attack you will do nothing more than constantly spin your wheels.
You should be looking to soak up as much information on the business as possible. Education is the key to success. This will help steer you to an area of the business that you may feel more comfortable with or feel that you have a better handle on. In your first six months to a year, you should be in a constant state of trying to learn every day with everything you do. Every time you go to a house, make an offer, talk to a contractor or look over a contract, you could catch something you may have never known before. The more educated you are in the business, the more comfortable you will be knowing which areas you enjoy.
The properties and niches you start investing in today may not be the same in six months’ time. You need to be able to walk the fine line between seeing what you are interested in and knowing when to move on. You should never dismiss a given aspect of the business based on hearsay or what a fellow investor may have told you. What works for one person in one market may not work for your circumstance. You will never know what may work unless you try, but you also need to make educated decisions.
Once you have your goals, finances, education and a tentative niche in place, you should be ready to start working on actual deals. Your goals and your aversion to risk will also lead you to the types of deals you pursue. If you are not comfortable tying up large chunks of your money on rehab properties with minimal, but safe returns, you could look for more speculative deals. If you are interested in investing for long term wealth, you will only seek out quality rental properties in strong areas. There is no such thing as a risk free deal, but there are obviously some deals that you will feel safer about. There may not be as much upside with these deals and they are not for everyone. Once you really start breaking down the numbers, you will get a better idea of what your bottom line will be and what the level of work and cash outlays are involved.
You can have the best plans and intentions, but that doesn’t mean things will go the way you want them to. The types of properties in your investing area and the availability of deals that come your way could cause you to shift gears from your original plan. The more flexible you are and the more you can accept that you will be in a constant state of flux for the first dozen deals, the more successful you will be. Finding your footing and your investing personality is not easy and will take some time. It is important to start with the basics and always revert back to them in times of indecision. If you are worried about following your niche and making it your own, it is better to be one of only a handful of investors chasing a deal than part of a large pool finding deals all in the same manner. Some of the most successful investors have created niches instead of following them. The quicker you can find your investing personality, the quicker you can start closing deals.