by Mindy Jensen
At the end of every episode of the Podcast, the last question for the guest is, “What do you believe separates successful investors from those who give up, fail, or never even get started?”
I used to think it was just fear. Mostly fear of losing money. Real estate isn’t cheap, and even losing an earnest money deposit can set you back, especially if you don’t have deep pockets to begin with.
But there are steps you can take to increase your chances of real estate success. The more prepared you are, the better your chances.
Get a Great Real Estate Agent
Like everything else, not all real estate agents are created equal. A good, investor-friendly agent is one of the best things you can do to increase your chances of success. Not all good agents are good for investors. Most agents focus on homeowners, and even though they may say they are investor-friendly, they might not know what constitutes a good deal.
Questions to ask potential agents include:
- “Do you own any investment property?” A great investor agent also invests. Not currently owning investment property isn’t an automatic no, but this is an important consideration when choosing an agent.
- “How do you determine a good deal?” A good deal is based on several different factors. If they can’t suggest rent ranges, don’t know how to figure out cap rates, or can’t give you a good estimate of after repair value (ARV), they may not be the best agent for your needs.
- “How long have you been an agent?” I have seen lots of recommendations on both sides of this question. An agent who has been in the game long-term may know the market like the back of their hand, but may be less than enthusiastic about your multiple low offers. A newer agent might not have the immense market knowledge, but may be hungry and eager and won’t mind making so many offers.
- “How long have you worked with investors?” Just like the question above, this one doesn’t have a right or wrong answer. The longer an agent has worked with investors, the more contacts they will have and the more deals they will be able to present. On the other hand, they may also have more investors to deal with, and a newer investor may not get the premium leads.
- “What sort of investors do you typically work with?” If you are a rehabber, someone who is experienced with fix and flippers will be better able to help you spot good deals and make repair suggestions you might not have considered. If you are a landlord, someone well versed in rental units can be a huge help.
Learn Your Market
While a great agent can help you find deals, ultimately it is YOUR money. YOU have to be comfortable with the offer you are making, and the best way to be comfortable with your offers is to know your market. From what houses sell for–both needing work and after they have been rehabbed–to what they rent for, you need to be familiar with what is happening in your market.
This won’t happen overnight. Having your agent set you up with automatic emails when a property is listed is an excellent way to keep an eye on what is popping up, list prices, what is selling, and what is being discounted. I scroll through my list every morning.
At least once a week, browse through Craigslist and Postlets to see what sort of rentals are available, what the asking price is, and what condition they are in. Bonus points for going to open houses to see the properties because those online photos never give you the whole story.
Analyze a LOT of Deals
It gets easier to spot a good deal once you have analyzed many. Practice makes perfect. But every deal is different, and in order to know what deals are worth a second glance, you have to have analyzed many.
Now, you may be thinking to yourself, “How do I analyze a deal? Is there an easy tool I could use?”
I’m glad you asked. There is! BiggerPockets has created Real Estate Investment Calculators to quickly help you figure out what sort of offer to make to realize the profit you want.
The Fix and Flip Analysis Tool helps analyze profit and holding costs. The Rental Property Calculator can help you analyze cash flow and return on investment.
We haven’t discussed wholesaling in this post too much, but we came up with a Wholesaling Calculator to help you determine your maximum offer price and quickly analyze repair costs.
Make it a point to analyze deals every week. As you scale your business up, start adding in more deal analysis until you are doing this every day.
Build an Awesome Team
If you are focusing on fix and flips, you’ll need a general contractor–someone who typically oversees the entire project and/or specialized contractors, people with single skills like electricians and plumbers. Finding a quality contractor is one of the hardest tasks you will have, so starting early just puts you that much farther ahead when you actually have a house to flip.
Your agent isn’t going to be the only person who can bring you a deal. A quality, experienced wholesaler can be a valuable asset. Wholesalers typically need cash buyers, but staying in touch with them and building the relationship now will help you when you scale up your business.
Another person to consider adding to your team is a stager. Homes sell faster and for more money when they are staged. Retail buyers often have little imagination when it comes to houses, and showing them how to use each room, especially those weird spaces that houses inevitably have, will help your house sell faster.
If you are more focused on rentals, a superior property manager replaces the general contractor. One of the most vital members of your team, your PM basically makes or breaks you. Finding quality tenants to live in your unit, performing maintenance when necessary using honest companies, and interacting with your tenants on a regular basis to keep the relationship in good standing are all things a great PM will do. But just like contractors, a good property manager is difficult to find.
Know what criteria you want to establish in your rentals–credit score limit, criminal history, income requirements, etc.–and look for a property manager who shares your values.
A handyman is another asset for your team. This is a person who is great with small repairs; not every problem requires a specialized set of skills. The window sticks, the toilet runs, the sink leaks: These are examples of items that can be repaired by a handyman. Establishing a relationship with one or two is so helpful down the road. Someone who knows you and knows you will keep calling them for work will make time for your emergencies.
Your handyman is probably not going to be able to fix everything. Some systems like HVAC need specialized repairmen when they go down. Using the same company over and over can give you peace of mind, fair pricing, and reliable service. They know they will keep getting business from you, so they put your repairs at the top of the list. Start building these relationships by using them in your own home or getting recommendations from other landlords–and make sure you tell them who sent you.
Numbers aren’t for everyone, and keeping business money separate from personal money can easily get confusing. You also want to make sure you follow the laws. Does your state require a separate account for security deposits? Are you required to pay interest on that money? Start looking now for an accountant familiar with landlord/tenant laws.
Someone near you is either doing what you want to be doing or wishing they were doing what you are. Someone else near you has the skills you are looking for. Make that connection.
Attending meetups, either those featured on BiggerPockets or through a local REI club, is one of the best ways to make local connections. Have you ever searched BiggerPockets to see who is near you? In Episode 112 of the BiggerPockets Podcast, Mark Updegraff noted that he regularly searches BiggerPockets for members near him and reaches out to them.
Have you set up your keyword alerts on the site yet? Reserve at least one for your area to keep up to date on local conversations and information about what is happening near you.
Connections don’t have to just be local. With the invention of this new thing called the internet, you can connect with like-minded people all across the globe. BiggerPockets members are such a welcoming, helpful group of people. Reach out to other members who may have things in common with you. Other flippers and landlords are happy to share what they have learned. Make it a goal to reach out to someone new every week.
Know What You Want…
If you are just starting out, focusing on one type of property or one strategy for investing is the best way to really learn. As you go down the investing path, you may be able to branch out and try new things. You might also decide you want to stick with what works for you.
Know what you want before you start looking. Are you interested in single family homes? Would you prefer multifamilies? Are you going to be rehabbing or buying properties to rent out? Would you prefer turnkey, where everything had already been done for you?
…But Have an Open mind
Not every deal is going to fit into your box, but that doesn’t mean it isn’t a good deal. Finding something awesome slightly out of your criteria can be just as sweet, so keep an open mind.
Build Up Your Credit
Having a solid credit score can help you qualify for the best rates with a traditional mortgage–one of the least expensive ways to finance a property.
Lenders won’t give you a loan for an investment if you have a bad credit score. Anything less than 580, and you’re out of luck. Many won’t even consider applicants below 620. The best rates are offered to those with scores of 740 and higher.
Start building your credit score right now by first getting a copy of your credit report. Go through that report with a fine-toothed comb, and make sure all the information on it is correct. Any errors you find need to be reported to the agency you received the report from.
One of the biggest factors in your credit score is on-time payments. If you are making payments late or not at all, your score will drop like a rock. Make it a point to make your payments on time every month. Schedule them on your smartphone calendar if you have to.
Another huge element of your credit score is credit utilization, or how much of your available credit you are using up. If you have a $10,000 credit limit and you have a $9,000 balance, you are using 90% of your available credit, and this makes your credit score go down. If you have a large outstanding balance, start paying that down as much as possible.
Length of credit history is another determining factor in your overall score. You may be tempted to close a credit card that you have had for a long time, but don’t use. DON’T DO THAT! Keep it open to keep your credit history length as long as possible.
Get Your Funds in Place
Yes, you can invest in real estate with little or no money down (hey, that would make a great book!), but it will cost you, whether in points paid to a hard money lender, half of the profits to a partner, or even just missed opportunities due to lack of funds.
If you are oozing cash, you can skip this suggestion. If you are like most of us and not swimming in liquid assets, have a clear plan to get funding, whether it’s a loan from a friend, hard money, or a traditional mortgage. There are many steps to borrowing money. Travel as far down the road in advance that you can go (paperwork, tax returns, etc.). The more information the lender has up front, the faster they can approve your loan and get you the money.
Learn Learn Learn
Hop on over to the Forums and read everything you can about the area in which you wish to invest. Read everything you can find about your niche. Read Brandon’s “21 Best Real Estate Books for Real Estate Investors.”
Find a mentor and work with them. Before you make contact, go through your skill set and see what you have to offer them. And then offer it. Paying for an education is one way to learn (from a LEGITIMATE source only, of course; no $40,000 courses for you, please). But hands-on experience from someone in the field is worth so much. If you can find a mentor, don’t concern yourself with compensation.
Talk to everyone you see at those REI meetups. Wait, scratch that. L-I-S-T-E-N to everyone you meet. Ask them what they do, and then listen to what they say. Everyone loves to talk about themselves. Ask them questions that don’t have yes or no answers. A great tip for talking to someone, “interviewing” them to find out more about them, is to “peel back the layers like an onion” and keep asking questions if they touch on a topic you don’t understand until you do understand.
Get Over Your Fear
Fear is natural. Fear of losing money is a very real fear for investing in any kind of product. I’ve invested in the stock market as well as real estate; I feel more confident in real estate because I have more control over my success or failure. I choose who I rent to. I choose what finishes go into my flips. My success doesn’t depend on the behavior of the board of directors or a Wall Street whim.
My fear of reaching retirement age with almost nothing scares me more. My fear of working until I’m 65 because I HAVE to, rather than because I want to, scares me more than the idea of losing money.
Arming yourself with the best knowledge (available for free at http://www.BiggerPockets.com!) and connecting with local investors in your area can mitigate your failure rate. It won’t reduce it to zero, but being educated and connected is the best way to be prepared–and believe me, it is some of the best preparation around.
Taking that first step is going to be hard. But you can’t ever be a successful real estate investor until you do. The journey of 1,000 miles begins with a single step. Lao Tzu said this in 2500 years ago and it still holds true today.
So, what is holding you back? What is the reason you haven’t started?
Let’s talk (and get all your questions answered!) in the comments section below.
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