5 Items To Consider Before Diving Head First Into Real Estate
You don’t need to invest full time to be a success in real estate. There are many investors who have kept their full-time job while balancing a budding investing career. This can be difficult initially, but over time it becomes part of your regular routine. The best way to ease the transition is by planning as much as possible while still employed full time. This allows you to think with a clear head, without the pressures of earning an income weighing on every decision. Even if you must wait a few weeks, or even months, before making your first offer you will be much more prepared to act when you do. Here are five items to consider prior to diving into the real estate business.
- Are you ready to work? Investing in real estate is not nearly as easy as it looks on TV. Regardless of the path you take you need to be willing to get your hands dirty and work. This is especially the case if you plan on holding on to your full-time job. Free time will be scarce and there will be plenty of times when your work for naught. You need to be willing to continue to grind away regardless of any setbacks you may face. Investing in real estate is like baseball in that success is the exception and not the norm. You may look at two dozen properties, make offers on three and get a counter on maybe 1. The rewards in real estate can be great, but you also need to embrace the work. Real estate rewards typically favor those investors who work the hardest. If you are looking to balance your full-time job with a real estate side hustle, you must be ready to work.
- Get financing in order. Everything in real estate revolves around financing. How and where you obtain financing will dictate your cash flow, budget, after repair value and ultimately your bottom line. Even though there are more channels for financing than ever before, they won’t just fall on your lap. You need to set up multiple layers and avenues of funding before you go any further. Every real estate investor should have a source for traditional buy and hold investing as well as a hard money lender for flips and rehabs. Traditional lender financing can be obtained through your local lender or mortgage broker. Without a firm prequalification letter you most real estate agents will not show you any listings. Getting a prequal letter typically requires just a ten-minute phone call where you supply the lender with your income, information to pull your credit report and current asset info. Hard money lenders are similar, but in a way completely different. They have their own set of criteria that they look for. You should talk to three different traditional and hard money lenders prior to moving forward with anyone.
- Target a niche. It is not enough to simply proclaim you want to invest in real estate. You need to figure out how you are going to generate leads. Traditional methods of scouring through the MLS or contracting delinquent homeowners can still work, but often requires hours of due diligence and a little bit of luck. However you plan on investing you need to bread and butter niche you can revert back to. You also need to consider how much time you have available to work your leads. A direct mail campaign can seem like a good idea, but if you can’t answer your phone at your primary job you are essentially throwing money away. Fortunately, with social media and increased technology there are numerous alternatives that can be productive. Whatever you do, find a lead generation niche that works for your schedule and your budget and stick with it.
- Prepare for obstacles. There is no getting around the fact that investing in real estate can be difficult at times. Instead of wrapping things up in a neat 30-minute program like you see on TV, things often do not go the way you plan. The unexpected in real estate is almost the norm, and not the exception. You need to prepare yourself for the fact that there will be plenty of setbacks along the way. This could mean changing the way you think about the business or getting a step ahead by putting business systems in place. You should take some time and think about the worst case in every scenario and how you can prevent, or offset, it. Regardless of who you are or how you invest there will be obstacles in your path.
- Assemble team. Behind every successful investor there is a good team in place. As you are considering your investment niche and market you should start reaching out to potential team members. Don’t be intimidated by the fact that you don’t have any deals in place or properties in your portfolio. There are many people that would welcome the opportunity to work with a new investor and build a new relationship. Reach out to a local real estate agent, attorney, contractor, accountant and even a potential business partner. The more people you have in place the easier it is to hit the ground running.
There is plenty of groundwork you can lay prior to starting in the business. Before you get going, consider these five important items.