Making the first move investing in real estate can be quiet challenging for a variety of reasons and due to fear. As much as that makes sense, we already know that, yet we are still taking a long time to make the first move. Here are 5 things to look for that automatically tell you that you are ready. Rather than having to find a reason as to why we are ready, the signs are right in front of us if we just take a look at our own situation.
You have practiced analyzing lots of deals matching the strategy you will take
Let’s face it, the more you practice something the better you get at it. Again, we all know that, yet not everyone takes the time to practice enough or even worse, not at all, enough being the keyword. Depending on what investment strategy you plan to take, you will be practicing differently. Here are a few examples of some typical investment analyzing formulas for different strategies. Keep in mind that there are so many out there for each strategy and you must only focus on the ones that make sense to you. Please don’t try to do it or know it all. This will actually hurt you more than you think.
The 1% Rule: If your investment strategy is a buy and hold rental single-family home to cash flow, then you will be analyzing and looking for properties that meet this rule and then dissecting and analyzing even further but you filter your options very well by doing this, which saves you time. The rule states that the gross rental monthly revenue the property produces should equal to at least 1% (the more it exceeds, the better) of the purchase price of the property. Example: a house with a purchase price of $133,000 and has a monthly rental gross income of $1,400 satisfies this rule ( 133,000 * .01 = 1,330)
The 70% Rule: if your investment strategy is a fix and flip for quicker revenue, then your analysis may involve this rule. This rule states that you should not pay more than 70 percent of the ARV (After Repair Value) of a property minus any repair expenses needed. The ARV is the after repaired value, which is what the home will be worth after it is fully repaired. For example, If a home’s ARV is $175,000 and it needs $25,000 in repairs, then the 70 percent rule states that you should pay no more than $97,500 for the property. ( $175,000 x 70% = 122,500 – $25,000 = $97,500)
If you find yourself analyzing one property after another every chance you get, chances are you have this one checked.
You have some savings, access to cash or have good credit
Having access to cash is a very powerful safety net to have that not only provides you with peace of mind, it can also act as insurance for your investment in the event that any emergency expenses arise to keep the investment afloat. The most important thing that this has is the boost of confidence when approaching your investing as it really helps combat fear. We all know that fear is the number one culprit that challenges us to succeed and minimizing that will improve your success rate. Whether you have some savings, access to cash like a relative, hard money lender or you are using your credit to access other people’s money. The goal is to have some extra money on the side. Sure there are some investment strategies that don’t require you to invest any of your money and don’t require good credit. In any case, this point stays on this list mostly because of the emotional effect it has on us by boosting confidence.
If you find yourself have some money in savings, know where to get cash or have good credit to use to get cash, chances are you have this one checked.
You have spoken to other professionals that you may need
You cannot do real estate investing all by yourself. You’re going to be dealing with other people in other professions who play different roles in the process. Knowing who to turn to and when to turn to someone is very crucial because not only will you not be able to do it all by yourself but who you work with also affects how successful your investing will be. Depending on your strategy, your list of people will vary or some may not be needed, but here are some examples.
Real estate agents: real estate agents can help you identify properties on the market, educate you on certain neighborhoods and trends as well as show you any property. Keep in mind that these professionals will typically only show you what is on the multiple listing service (MLS) and not all great deals are found there.
Attorneys: real estate attorneys will help you with any legal parts, which almost always exist in real estate.
Lenders: if you plan to use your credit, you will want to know who you will be working with to obtain these funds.
Contractors: you will need a contractor or someone who can attend to all of your repairs your investment may need if you are not doing them yourself, of course.
These are just a few of many examples. I know this can seem overwhelming but the main things to know about these people are the following;
- Can they do the job?
- How much do they cost?
- Do I or can I trust them?
Again, knowing which strategy you plan to approach will determine which set of professionals you will need to leverage. Then once you know which professionals to leverage you know who you have to choose from to work with. Again, use the 3 main questions when determining which professional to work with. You are essentially choosing someone to be on your team so choose wisely. And like mentioned before, who you choose makes a big difference.
The good news is that much like any team for any sport, they are always subject to change so you can always make adjustments with who you are working with. If you know who you will turn to for any specific reason in your investing journey, chances are you have this one checked.
You have the patience or know when to be
We have all heard about the wonderful word of compound interest. What they don’t tell you is how boring it is and sounds and the fact that it requires time and patience. Real estate investing is no different, which can take time, again depending on the strategy. But even the strategies that put money in your pockets faster, like fix and flips, can also take time or sometimes it doesn’t make sense to sell when you are ready. Real estate is unpredictable and sometimes it delays your rewards. It’s best to approach real estate as a long term investment and keep in mind compound interest.
The good news is that if you have any of the above points checked, this one is the easiest and the one that you probably obtained first. Analyzing a lot of properties, taking the time to determine who will be in your team and securing a method of accessing cash all require work and time, which cannot be done without patience or knowing when to be patient at least. The key point here is “knowing” when to be patient as you don’t need to be patient all the time, just know when it makes sense or it is required to do so. For example, the investors who capitalized during the last housing crash were the ones who strategically and knowingly ignore patience to hold but rather they decided to take action and capitalize on an opportunity to acquire undervalued homes. Knowing when to turn the switch on and off is more important.
You know why
This one is at the bottom and not at the top for a reason. If you have read this far then chances are you already know your “why” and can cross this point off your list. If you have a strong enough motive to invest in real estate then any of the information above is definitely valuable for you to read even if you already knew these points, more power to you. These points can serve as a reminder, your mind is practicing the important principles that make you a better prepared investor. Remember the importance of practice? Some examples of why people invest in real estate are the following;
- They are tired of working at their job and want to provide a replacement income stream
- They want to build a portfolio of income-producing assets for their family
- They a retirement plan
Making the first move into real estate investing does not have to be complicated. In fact, everything about real estate is quite simple if you focus on only the things that matter to you in order to succeed. Don’t get caught up trying to understand everything. Rather, understand what all you need to get started and implement the approach you decide on.
As you progress on your journey you can learn different investing techniques so long as fist get started and the hardest part is knowing when to do so. The answer to that question is in your own situation, so take a good look at yourself and see if you check off for all the above points to make you a more successful investor.
Hi, I’m just an inspired recent real estate beginner investor named Miguel Rivera from a modest town neighborhood called Pigeon Hill in Aurora, Illinois, the City of Lights! I have 3 years in so far investing in real estate and excited to continue to walk my chosen path to reach my ultimate financial goal of living off my rental income before I reach 35 years old! Driven by infinite growth potential and guided by my mentor, I managed to get started and make it work with just a modest salary, practically no education in the field, learning and applying some key habits. This website is a collection of all things that I have learned so far that I wish can help other recent real estate investors! Click here to view more about my story.