This is truly an exciting time to become a real estate entrepreneur. Almost all local markets are both highly active and profitable. Also, there have never been more ways of getting started.
Tip #1. Study the broad market. Is your interest and skill set most suited to commercial or residential real estate? Typically, new entrepreneurs begin with residential because it’s less complex than commercial as well most people have some personal experience from buying their own home. Still, there are many categories within residential real estate that should be broadly studied.
Tip #2. Decide if you want to be a passive or active investor. A passive investor might hold a private loan note secured by real estate. The current prevailing interest rate is about six percent. Other passive investing is done through seller financing, tax liens, and hard money lending. Don’t assume these are 100 percent passive. You still have to vet each deal and monitor compliance to contract terms. But it’s not as if you’re strapping on a tool belt each morning to rehab your investment house.
Tip #3. With active investing, you still must learn about and decide among several investment strategies. You could strike out as a landlord. Then you need to understand your options between single-family houses, duplexes, triplexes, and quads. Anything less than five units is considered residential property. Do you want a turnkey property or a rehab? If it’s turnkey, are you going to personally manage and maintain it? Or are you going to hire a property manager? If it’s a rehab, are you going to do the work yourself? Manage subcontractors? Hire a general contractor? When the rehab is complete, will it become a rental or a flip?
Tip #4. Develop your business plan. By now, it should be clear that you need a plan before you jump in as a real estate entrepreneur. In fact, it’s a good idea having a plan to decide what segment of real estate investing you will start with. Create a list of your strengths and weaknesses. This includes your current knowledge of real estate investing, your work habits, and your skills. It’s easier than you might think as long as you are honest with yourself. You want a plan that exploits your strengths and bolsters your weaknesses or at least minimizes your exposure to them.
The next important section of a business plan is the opportunities and threats section. These are external from you and your new business. An opportunity might be the chance to buy inexpensive property in a neighborhood being revitalized – plenty of upside. A threat might be a major infrastructure project that will disrupt the neighborhood for months or even years.
There are several other elements that go into a sound businesses plan. Financing, income projections, marketing, and reserve funds are among these.
Tip #5. Understand the local market. Who are your targeted renters or buyers? Can most of the local population afford what you plan charging for rent or selling for? Does the school district appeal to your target prospects? Neighborhood amenities? What does the local employment picture look like? Is the property in a flood plain and susceptible to weather damage? Learn as much about the neighborhood as you can.
Tip #6. You make your money when you buy. The big benefit that comes from the studying and planning is that you’ll know when you find the right property to invest in. Whether you’re renting, flipping, or financing, you’ll know when all of the required elements are in place. You’ll move forward with confidence that you’ll succeed. But still have a plan B. If your flip doesn’t work as planned, you need to be able to turn it into a positive cash flow rental. If you finance and the buyer defaults, you need to be able to foreclose quickly and sell at a profit.
Tip #7. Just do it. The flip side of jumping in without a plan is forever procrastinating. Now is the chance of a lifetime to become a real estate entrepreneur.
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Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for eleven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.