Getting Started in Real Estate Investing

The great thing about real estate is it offers so many different opportunities to invest. You can go big, or you can go small. You can be active, or you can be passive. You can invest on your own, or you can partner. And then there is a wide variety of different property types to invest in. You can buy residential, commercial and then within each of those categories you there are many more categories to choose from. With all of these options, where do you start?

What’s Your Goal?

Before you start investing, you should have a goal. It can be a simple goal like “I want to put my idle cash to work for me” or “I want to quit my job and flip houses” or “I want to sit on a beach and collect a check”. Whatever that goal is, it is important to have that in mind when making an investment.

Know Your Allocation

Do you know how much money you want to invest? Do you know how much money you can comfortably deploy?  Real Estate is typically a long-term investment, but there can be some short-term options. You need to be clear on that before you deploy your capital. If you need your money back in six months, then your investment strategy will be much different than if you do not need the money back for 3-5 years or longer.

A six-month timeline might mean you go with short term loans to investors doing flips. If you have a much longer timeline and you do not want to be involved day to day, then passive investing in multi-Family or self-storage may be the better route for you to go. It is very important to know when you need your money back.

Are You Ready?

When you decide you want to invest in real estate, one of the best things you can do is to move the capital you want to invest you a savings account and ear mark it for investing. Many times, I see investors leave their money in the stock market or other investment vehicle and then they are not ready to invest when an opportunity comes up. Then the worst thing that can happen happens…The stock market has a correction, or the company they were invested in has a bad earnings report. The stock dips and the investor no longer has the money needed to invest in real estate. They miss the opportunity and then it takes months, or even years to recover.

 In addition to a potential change in your investment position in the stock market or similar investment, you could just miss the opportunity by being ready. Real Estate deals get over subscribed all the time. This means that they get more money for the deal than needed, so they have to turn away investors. If you are not in the deal first, then you may miss out. This happens on a regular basis. You have to be ready to deploy the capital because the opportunities can go away quickly.

Know what you are looking for know your guidelines

In order to act quickly, you need to know what you are looking for. If you know what your goals are, and you know the amount of capital you are willing to invest, then you also need to know what kind of returns you want AND what kind of returns to expect. Too many times I see investors never invest in a deal because they are unrealistic about their returns, or they have no idea what returns they should expect. If you want 50% returns on your money every year, then you are going to have a very hard time finding a deal. Do those returns exist? On rare occasions they do. Yet you might wait years and not buy anything waiting on returns like that. Some people are ok with that. I can attest that you won’t get many deals, and you will likely spend a lot of time and effort just to end up frustrated while looking for those investment unicorns. If you spend your time trying to hit grand slams every at bat, you are likely to have a lot of frustration. The people succeeding in real estate are the ones hitting the singles and doubles and they get the occasional home run or grand slam. Those singles add up and help keep you motivated in your investing journey.

I tell investors to look for 3-8% cashflow on your money a year on real estate depending on the asset class and the market. Then combine that with the potential tax benefits, equity buildup and other benefits you will realize some great returns over time.

Act

Eventually, you have to act. If you have done your due diligence and every thing looks good, then you need to act. If the deal goes well, then congratulations! Enjoy your returns, learn something to apply on other investment and get ready for your next deal.

 If the deal goes bad, then congratulations. That may seem counterintuitive yet follow me for a second. You invested in a deal, which can be scary the first time. Congratulations on taking the first step. There is a treasure trove of learning that usually is more abundant in a bad deal. Have the right perspective. I have made bad investments, and I learned more on those deals than I could have in a classroom, and it was cheaper than a college education. I made sure not to make those mistakes again.

Am I telling you to just go out and invest in anything? Absolutely not.

Am I telling you that you shouldn’t worry about the outcome? Not at all.

What I am saying is that if you really want to invest in real estate you have to eventually act. Learn, do your due diligence, find good investors to work with and the eventually you have to act. I see too many investors that pass on great deal after great deal, and then they get frustrated by not getting a deal, they finally act and it’s the wrong deal. Never invest out of frustration or a feeling of desperation. It is called deal fever, and you want to avoid it. The from that one bad deal they vow never to invest in real estate again. And they turn their back on a wealth of income, knowledge and relationships that are form in the real estate investing world. Do not be afraid to make a mistake, do take measure to minimize risk and invest with caution and purpose.

*And never invest money you can’t afford to lose*

This goes back to guidelines and allocation. If you have $50,000 to your name, I would not invest all of it. You might invest 5%, 10% or 20%. I personally do not want to invest more than 10% of my investable cash in any one investment. I also do not want to buy anything for personal use that costs more than 10% of my net worth.

For some of you reading this, you have a stable job and have a lot of extra cash every year, then you may have a different approach. If you have an extra $50,000 -$100,000 left at the end of the year and have good savings and are in great shape financially, then you might deploy more capital. Everyone is different. Work within your constraints and in time it can grow.

This is not investment advice.  Investing involves risk. Do your due diligence.