Like so many others, you watch shows like "Flip This House" and think,
"Wow, what a great way to make money...I should do that."
You think you might want to "flip" properties, but you don't know where to start.
For most people, it stops there, and they never invest in a single property.
Some people take that inspiration and become successful real estate investors.
Far too many, however set out to invest, but end up loosing money, or just barely breaking even.
What then should you do to increase your likelihood of landing in the "successful real estate investor" category?
Here are some things to do to help set yourself up for success:
- Know your limits:
No single person can do it all. You can dramatically increase your chances of success by having a solid understanding of the limits of your own knowledge. Knowing when to say "I don't know" is extremely important. Evaluating your weak points will also help you build your team. If you don't fully understand your local market conditions, for example, hire a REALTOR® who does.
- Build a team:
As was said in #1, above, "No single person can do it all." To improve your chances of success, you need to build a network of support - your "Team." Just like a football team, there are many positions that need to be filled. You need to consider filling the following positions:
- REALTOR® (note -- the agent you select may already have many of the other team members you need already identified and available to fulfill your needs.)
- Property Manager
- Home Inspector
- Title Company
- Mortgage broker/banker
- Insurance Agent
- General Contractor
- Subcontractors (Plumbers, Electricians, Carpenters, Painters, etc.)
- Set your goals:
By setting specific, measurable results as your goals you will help get yourself on the path to being a successful real estate investor. Realistic, attainable milestones, rather than colossal hurdles are the key to forward progress. Work with your REALTOR® to understand the opportunities in your target market, so that together you can set appropriate goals.
- Define your exit strategies:
Part of your planning process has to account for your exit strategy, as well. Knowing when to get out of a costly project is often just as important as deciding which potentially profitable project to take on. Weigh the advice from your accountant and your REALTOR® when determining the best exit strategies for you.
- Limit your risk:
You can limit your personal risk of financial loss by several means. Maintaining the proper licensing and insurance, (and using only licensed and insured contractors) is one factor. Limiting personal liability by structuring your project as a separate business entity is another. When you build your team, use your accountant and attorney to advise you on these matters is essential. Working with a REALTOR® that understands the application of these business entities in real estate transactions will help you smoothly overcome any obstacles that may come up in the process of a real estate transaction, as well.
- Follow a plan
Planning is extremely important. Not just planning the flow of a particular project, but also ensuring that your plan fits within any master plans that the local municipality may have. This can help you avoid the need for costly zoning variances and special use permits. It can also help identify areas where there may be outside development efforts that will effect your property values, for better or worse, in addition to identifying potential incentives for positioning your efforts in targeted opportunity zones that may allow you to take advantage of tax abatements, special rehab financing, etc. REALTORS® that regularly work with investors will have access to the type of information you need to take these factors into consideration, so working in partnership with your REALTOR to build your plan will help set you in the right direction.
If you see a common thread in these steps, it is intentional. Working with your REALTOR® every step of the way will help you in more ways than one. In addition to helping you negotiate the best acquisition price, and helping you get the best price the market will bear for your finished product, by partnering with your REALTOR, and enabling them to best understand your goals, you will create a mutually beneficial relationship - they will be ever vigilant for opportunities for you to succeed in your long-term plan. Perhaps the best advice was offered by one of the world's most respected investors:
"If you want to go fast, go alone. If you want to go far, go together."