When dealing with real estate investments there are many steps to go through before investing. Here are my top 10 keys to a successful real estate investment.
(1) Education – If you are not experienced in real estate investments the very first thing you should do is to get educated. Take the time to find out what all of the risks are in the investment type you are interested in. Find others that can help educate you on the investment type, which are not involved in the transaction you are doing specifically so there is no conflict of interest. Buy books, tapes, and go to multiple seminars in order to continue your education, and don’t buy the $5,000+ books and tapes sets from the gurus. Buy your educational material from the bookstore and save yourself thousands of dollars.
(2) Goal Settings – If you do not have a goal lined out for your real estate investments how do you plan on getting there? Most investors buy one property, or invest based on emotion rather than having a set goal in mind. For example, you could have a goal of obtaining $30,000 per month in passive rental income from your investments through buying single family rental homes and apartment buildings. Your goals should be clearly defined and should include protections and risk mitigation techniques to make sure it is a stable viable plan that can be obtained.
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(3) Building Your Resources- You WILL NOT become a successful real estate investor without resources. In real estate resources include, capital investors, property leads, team members and much more. For this you must go to networking events if you do not already have your resources built. It’s imperative that you go to networking events and expand your relationship base. Real estate is a team sport so if you do not go network you cannot build your team.
(4) Building Your Team -In order to make your investments work you must build your team. Some of the team members you need are Real Estate Agents, Brokers and Bankers, Private Lenders, Appraisers, CPA’s, Attorney’s, Affiliates, Inspectors, Property Managers and Contractors. There are much more but it’s pretty impossible to name them all. It takes quite a bit of time to develop your team and make sure they can be relied upon. I have found that building a team is the most important aspect of investing other than your due diligence on the investment itself.
(5) Due Diligence – Before investing in any real estate asset your due diligence is crucial. You need to analyze the market your investing in, the market timing relative to that market, the specific neighborhood, the market value of the investment, the cash flow it produces, the rental income it should bring in, all of the expenses related to the investment and much more. Inspections should be done as well as review of all of the backup documentation such as leases and contracts. Think like an auditor, review all of the backup information provided by the seller and verify it with an outside source as much as possible. I hear horror stories all the time about how people lost money in real estate. After inquiring as to what happened I can say that 99% of the time the investor did not do or know how to do the right due diligence on the investment in the first place.
(6) Property Management- Property management can make or break your investment. If you do not have a competent property manager that actually cares about your investment and your success you will have a losing investment. We went through about 5 different property management companies before finally starting our own company and bringing the management in house. Most managers are bad at some of the basic management functions such as accounting, rent collection, tenanting, leasing and background checks, repair calls and taking care of the tenant. By far the most important and biggest problem is communication with the owner of the property. Communication is crucial because without communication the investor cannot make decisions regarding the investment and lack control. Property management also needs to be structured based on performance, meaning, they get paid if it’s occupied only, not when it’s vacant and there are incentives in place to optimize performance.