Getting Started As A Real Estate Investor
By David Bean, COO
It’s the standard question that arises during most introductions. When I reveal that I’m a professional scuba diver, people are usually intrigued and respond with “I’ve always wanted to do that!”. Very often I get the exact same response when I share that I am also a Real Estate Investor.
I find that people who have not taken up scuba diving have a very good reason for not having done so. However, when it comes to real estate, people who have ‘always wanted to do that’ or who ‘have thought about doing that’, can’t explain why they never have. They are just like me, or as I was before I got started. I was intrigued by real estate. I wanted my own business. I wanted to have another source of income and build equity in property for my future.
I thought real estate would be a good avenue to accomplish all of these goals, so I thought about it. I thought about it for a long time, too long. Then one day, a friend said to me, “there’s two types of people in this world, those that think about doing something and those that do it”. It was then I decided to jump tracks, take action and actually do something about it. It was then I began my journey of owning real estate as an investment and began to accomplish my goals.
If you’ve ever considered investing in real estate, I would encourage you to do so. If you’ve been thinking about it, I offer these suggestions to help you get started and move from thinking about it to taking action and actually doing it.
1. Talk To Investors
Most investors are happy to share the lessons from their own journey. Gather useful information such as: why they got started, suggestions for getting started, the benefits, tips, cautions, tools to use such as leases, letters, applications, etc., advice on the tenant selection process, and more. Build relationships with successful investors, their advice over time will be invaluable.
2. Join An Apartment Owners Association
There are groups that provide advice, guidance and useful tools to landlords. One such group is Vermont Landlord Association. You can use their templates for leases, applications, letters, notices and more to get started building you own set of tools. They also are usually very responsive when questions arise over time and they offer valuable educational sessions and articles. There can be a fee to join such Associations, but it is nominal and worth every penny.
3. Study Locations
Become informed about different towns’ laws, policies, rules and restrictions governing rental properties. Use this information to determine where you would like to own property. Some Cities, Towns or communities can have restrictive policies and governing bodies that make owning investment property in their jurisdiction more challenging on a variety of fronts. While some of those areas may be attractive due to potential rental incomes, the flip side is the controls, and often expenses, those communities place on landlords. Rules can change as well, usually as the political landscape changes. Some communities are currently discussing rent control and eviction restrictions. For these reasons, knowing where you may want to invest is different than simply buying as a home owner.
4. Get Pre-Approved
Based upon some assumptions of purchase price, down payment and rental incomes, a lender will be able to assist you in determining the limits of your borrowing power for investments. Moving through this process will allow you to compare lenders and select one to work with while also setting the financial boundaries for your investments.
5. Set YOUR Goals
This is your journey so you need to chart the course. Advice from others is wonderful but ultimately you will be making the decisions and living with them. Outline a defined strategy with rational justifications to support each aspect and decision point. With the information gathered, determine your personal goals for investing. Define any guidelines to be used in your investment strategy.
For example, what towns will you target, which will you avoid, what type of investment property are you interested in (i.e. single family home, condos, duplexes, multiplex), how much down payment are you willing to make, do you want fixer- uppers or more maintained properties, are you looking for passive income or to primarily to build equity, how involved do you want to be in the property maintenance, what CAP rate are you seeking, etc. By having a defined strategy, you will be able to quickly consider or eliminate opportunities that arise.
6. Start Your Search
Once you have a sense of what you are looking for, you must begin the search. The inventory may be low and the pickings slim. You will also see a lot of properties you will be amazed are even inhabitable. Be Patient! Investing is not an emotional activity; it is all about the financials. Do not rush into your first purchase if it does not meet your defined strategy guidelines. However, be prepared to act because after seeing so many duds, you will want to move quickly to increase your odds of securing the gems you find along the way.
7. Partner With An Experienced Realtor
This is the most important step in the process of getting started. I have saved it for last so it will be the first thing you remember. It should be the first thing you do. A Realtor experienced in guiding investors to successfully buy and sell investment properties will be your biggest asset as you move through this process.
They have been there! They have seen successes and failures and understand the reasons for each. They can share those experiences with you so you can find success and avoid failure. They know the markets and the communities you will be researching. They can explain the process and investment terminology so you can make informed and profitable decisions. In selecting a Realtor, interview them.
Do not sign an agreement with just any Realtor who claims they know about investing. Ensure their experience is real, check reviews and recommendations and make sure you feel you can build a relationship with them. Ideally, you are entering into a long and fruitful relationship.
In Conclusion
After years of thinking about jumping into the investment game, I met Nate Malley of The Malley Group. I did my research, got good feedback and began looking at properties with Nate. It was incredibly helpful to have a knowledgeable guide through the process. I was given insight into property evaluations, building an offer, negotiating and patience. Before I knew it, I was sitting at a closing table locking down my first investment asset.
Over time, Nate and The Malley Group helped me secure several properties and I have never looked back. My only regret is that I didn’t get started sooner. I have enjoyed the process of buying and owning investment assets. It has helped create a source of income that will benefit my family into the future. Best wishes and prosperity to you as you set out on your real estate journey.