The world of real estate investment is exciting and all-encompassing for those who make it their life’s passion. With regards to the residential real estate market, there are really two ways that an investor can go about building wealth. Those two approaches are purchasing residential properties and then renting them out on a long term basis to qualified tenants and purchasing properties and remodeling and improving them for a relatively quick sale for a profit, which in the industry is known as flipping. There is no right answer with regards to which way to go, and these two concepts are anything but mutually exclusive.
If you’re thinking of getting into real estate investment, the first thing you know is that if you do it right, making money in real estate is something that anyone with the right mindset and level of dedication can accomplish. However, there are things that you should consider handling before you fully move forward with any real estate investment ideas. Gatsby Investment is here to tell you that while we obviously think that real estate investment is a worthwhile way to make a living, we would also like you to review the list of items below and internalize them before you start taking those all-important next steps.
1. Organize your finances
Almost regardless of specifically how you get into real estate investing, you’re going to have your finances reviewed thoroughly by someone. Save yourself the time and stress of wondering what they are going to see ahead of time by doing your own review. Pore over your credit history, meticulously comb through your individual balance sheets and make sure you have an intimate, innate understanding of what your financial picture is going to look like for someone else when they see it for the first time. If necessary, speak to a financial professional as you work through this process, so you can be sure that you’ll be putting yourself in the best position possible to avoid any holdups during any financing aspect of steps you decide to take in the future.
2. Allocate your financial resources
Yes, making money in real estate involves investing money in real estate, but that doesn’t mean that you still shouldn’t place limits on yourself. Specifically, if you’re going to get into real estate investing, you should decide just how much of your worth you’re going to dedicate to that end. Whatever the amount, stick to that limit and work within that budget, whether your capital is coming from your own assets or you’re going to be borrowing. That way, you’ll never have to feel like you’re making “another trip to the bank” every time something comes up such that it feels like an unplanned expense. Dedicate those resources almost like they’re a separate business in which you’ve already invested. It’ll reduce any stress you’re going to encounter.
3. Decide on your time investment
Before you wind up wondering whether or not you’re ever going to have enough time to keep up with what you’re doing, decide before you take this step whether or not this is going to be a hobby or a profession. Making money in real estate is possible with either approach, but settle this question with yourself before you move forward. You don’t want to think of this as a passive, secondary source of income only to wind up working on an almost full time basis while juggling other things in your life, as that’s going to be stressful and make you anything but happy.
4. Build a network of skilled professionals
Regardless of the type of real estate investment you think you’ll be going into, you’re going to need professional help to make it all come together. For instance, if you plan on purchasing homes to rent out on a long-term basis, you’re most likely going to need a trustworthy real estate agent to help you find those properties as well as a dependable group of financial professionals to help you push through the financing and documentation. If you plan on flipping homes, you’re going to need a contractor or set of professional trades people to help you make the changes necessary to the properties you purchase. You should have those in place ahead of time so you’re not scrambling as you encounter those first few opportunities.
5. Learn the local market
In most cases, real estate investment is generally local. If you live in Los Angeles, you’re most likely not going to be purchasing properties in San Antonio, Texas and either renting them or flipping them, as that doesn’t make a lot of sense from a practical standpoint. What that means for you though is that if you’re going to start making money in real estate, you need to obtain a deep understanding of your local real estate market. Doing so will not only help you decide on a price when it comes time to make an offer, but it will also help you understand when and where to look for opportunities.
6. Start small
If you’ve never done any real estate investment work, you should think about treating it like just about anything else in that it’s best to start small. If you’re new to this world, it may be overwhelming for you to purchase too many properties at once, and that could be the case whether you’re renting them out or you’re flipping them. It may be wise to start with one property and get your feet wet, so to speak, before you begin to gain confidence based on the work-specific knowledge and experience you acquire.
After you do gain some experience and start to obtain that sought-after innate level of knowledge with regards to whatever approach you take, you may want to consider diversifying your real estate investment portfolio a bit. If you purchase long-term rental homes and you have solid tenants in place, it may be worthwhile for you to try to take on a flip project to see how you like it and how you do. It never hurts to have more than one skill when it comes to the world of real estate.
8. Expand with earned capital
If you’re growing your worth and making good money in the real estate investment world, then you’re most likely finding yourself with some money in the bank. If it’s your ambition to grow your portfolio, then you should do so with the capital you’ve already produced on previous investments as much as possible. That’s because after getting your start, you’ve in a sense shielded yourself from additional risks on top of those you took when you made that first investment.
9. Reassess regularly and objectively
Real estate investment is like any other profession in that you need to regularly take a close and objective look at how you’re doing. Every quarter or so, especially if you’re going to be paying quarterly tax estimates based on the advice of your tax professional, you should sit down and review every aspect of your work, to see if you can spot trends that can be exploited for continued growth or problems that you may not have realized existed until you took that time to review. It’s easy to get caught up in the day-to-day buzz of activity in the real estate world, but reassessing your work is always a good idea.
10. Work with an investment firm
Finally, if you’d like to get into the real estate investment world without having to take on all of the tasks and duties mentioned above, there is a way to do that as well. You can work with a real estate investment firm that will handle all of these steps for you so that you can simply watch your money grow without having to endure the time, risk and stress involved with attempting to go it your own way.