Learning How to Invest in Real Estate

For successful investors, a real estate business strategy is clearly defined with short and long term goals. In essence, they’ve designed a roadmap to their destination that reveals not just the easiest route, but highlights potential pitfalls along the way. The problem is that many beginner investors get stuck in the early stages of deciding which route to pursue, instead of putting together a detailed real estate business plan and taking action.

As a replacement investor, it’s completely natural to be hesitant on which land business strategy to pursue. Investing is comprised of unpredictability, trial, and error, so a little bit of indecisiveness is to be expected. The first step in defining your land business strategy is to show your “why” for getting started. This is the rationale for eager to achieve the important estate investment landscape, whether it’s financial freedom or flexibility, and your purpose for getting started.

Let’s say your motivation for investing in real estate is to earn more money. While this is definitely a reason many entrepreneurs get started, it’s important to dig deeper and consider the root, as it could range from wanting to pay the bills to afford a family trip. Whatever the reason, this is your why, and it will help you to overcome hardships and achieve your long-term goals when investing in real estate. Believe it or not, the right mindset is the first step to a successful career in real estate investing.

Another critical component of the process is real estate education, which can benefit investors by mitigating risks and improving their return on investment. Although risk is involved in all types of investment, understanding the ins and outs of real estate investment, along with business strategies to make deals less risky, will help to increase a new investor’s level of preparedness. Having a well-rounded education in real estate can also improve an investor’s bottom line, helping to save money and avoid inefficiencies.

Aligning Your Goals With Your Real Estate Business Strategy

Once your purpose for getting started in real estate is defined, the next step is to align your goals with the right business strategy. What do you want real estate to help you achieve? Are you looking to flip houses or buy them wholesale?

There are numerous options to take a position in as a beginner investor, including wholesale, prehab, rehab deals, and even land within the stock exchange (REITs); but each path consists of specific duties and responsibilities. As a beginner, it’s important to write down both your short and long-term goals as they come. Although they may change over time, you’ll have a clear understanding of the objective at hand.

The next step is to determine what you want out of a career in real estate investment, including the responsibilities associated with each strategy. Consider factors such as your short and long terms goals, as well as your current situation, including access to capital and time constraints that may inhibit you. The key to determining a real estate strategy is to first comprehend what you want to achieve and then align that desired goal with the right business strategy to achieve it. Here are some examples:

Investors with short-term real estate goals should consider:

1. Wholesaling: This strategy consists of acquiring distressed properties at prices significantly lower than market value and controlling them through a contractual agreement known as a purchase and sale agreement. The investor then secures a buyer willing to purchase the contract before closing. Costs associated with wholesaling are very minimal and generally in the form of an earnest deposit.
2. Prehabbing: This land business strategy is ideal for beginner investors because it applies the speed and efficiency of a wholesale deal, but with less risk and better profit margins. Generally speaking, a prehab can take upwards of six months and fetch anywhere from 10 percent to 20 percent of the final sales price.

Investors with long-term real estate goals should consider:

1. Rental Properties: Rental properties are ideal for long term appreciation, which have historically averaged four-to-five percent a year. In addition, many of the costs related to rental properties are also tax-deductible, making them great for both short and long term investments.
2. Rehabbing/House Flipping: A rehabbed property will typically earn a higher return on investment compared to a prehab or wholesale deal. However, the costs associated with a rehab differ tremendously. For lower-end tasks such as landscape, painting and small repairs, the cost can range from a few hundred dollars to $25,000, with bigger rehab projects ranging from $25k-$75k. According to RealtyTrac’s latest report, homes flipped in Q1 2016 yielded an average gross profit of $58,250, the highest average gross flipping profit since Q4 2005. That’s an average 47.8 percent return on the original purchase price, the highest average gross flipping ROI since Q3 2012.

Investors looking for passive income should consider:

1. Rental Properties: together of the more popular investment vehicles, a rental property generates an investor’s favorite thing: monthly income. These investment gems can even be achieved on a part-time basis depending on whether a rental management company is hired, or the investor chooses to become the landlord. Time and costs will differ with each method.

Financially strapped investors, with little time, should consider:

1. Wholesaling: Wholesale deals require minimal capital, no experience, and offers the quickest method for generating a healthy income.

Investors looking to build wealth should consider:

All Of The Above

“It is easy to get sidetracked or have a change of heart when you don’t have conviction in your actions, “ says Paul Esajian, my brother and colleague. “As an investor, you've got numerous options and ways to run your business. Instead of trying them all out at once, take your time and pick one and go with it.”