What makes real estate investment worth your time is stability. There are faster ways of making money, but the steady returns and guaranteed eventual remuneration of your initial investment - assuming you did your homework - make properties the go-to money storage device for the world's most powerful people.
When getting their feet wet into the world of real estate, beginner investors will shoot for the goal of financial independence. This is when your living expenses are fully covered by income from your investment.
These five steps represent your path to financial independence.
Bird dogging
Maybe you are just starting out in real estate investing and you don't have a whole lot of knowledge. One thing you could do is hire a professional mentor to get you started in the business - yes, there are paid mentors out there who will connect you with the industry for a fee. Another popular option is reading on the subject. The interesting middle ground between the two is an option called bird dogging.
If you are interested in earning and learning while actually immersing yourself in the business of real estate, bird dogging is a tried and true first step forward.
Bird dogging is an applied networking technique whereby you scout buyers and sellers for interested wholesalers who offer you a kickback or some kind of deal. You yourself do not close anything, but you will come out of it with contacts, earnings, and a foot in the investment acquisition business (as opposed to say, the retail housing market, landlording, or the home remodeling businesses)
1. Associations: Go to real estate investment association meetings.
2. Mentors: Offer potential mentors a quid-pro-quo based on bringing them buyers and sellers rather than paying them directly.
3. Google: Reverse search and meet people looking for deals.
a. "Cash for houses in New York," "I buy houses in New York," "We buy foreclosures."
Form an LLC
Looking for property buyers and sellers means looking sharp on paper. If you're interested in the optimum process America has to offer for organizing, protecting, and managing your real estate investments, the way to go is to incorporate an LLC.
Setting one up is very simple and cheap. It's part of what attracts people from all over the world to America. Here is how to set up a real estate investment LLC:
- File articles of incorporation with the state in which you will be purchasing investment property.
- Keep the LLC in good standing by having a Registered Agent in each state where you form an LLC.
- Pay the relevant fees. These are different by state.
Evaluate Your Target Market
This must be done in macro as well as micro. That goes double if you are investing outside of your home market. Generally home markets are considered easier and more effective because you will have a more accurate and nuanced vantage point of both levels.
Macro:
Region Economy: How does today's job market compare to that of five years ago? Ten? Who are the largest employers and what are the most common types of jobs? Is there diversity in the local economy?
- Population Growth: You will want to look at the population trends for the region you are considering not only relative to other comparable regions in the state or country, but also internally. Which neighborhoods or municipalities show positive population growth?
- Rent/Price Ratio: Divide the median property price by the median rent to get the price/rent ratio. The higher this is, the worse the climate for real estate investment.
Micro:
1. Aesthetics: What kind of people and businesses live in this neighborhood? Is it scenic and attractive? Most of the top cities in the country advise to look for microbreweries and other telltale signs of the now-fully-adult millennial worker class.
2. Walkability: Within urban areas, the walkability factor is absolutely critical for most investments' bottom lines. The connection between walkability and profitable real estate in metro areas is about as reliable as you can get.
3. Barriers to Supply: Limits to building. Can be manmade such as protected parks and territory, or natural borders such as lakes, deserts, or mountains. For example, sometimes you can pick up a hefty score by buying and holding a limited type of zoning like commercial or multi-unit properties that will gain value over time.
Set Up Financing and Down Payment
Entering the property market is the most common introduction the average Joe has with the wide world of finance.
People outside of real estate will tell you that a 20% down payment is normal. The truth is that you can find down payments for much much lower, even 3.5%. Obviously pulling this kind of stunt requires financing know-how or a sacrifice in the form of a higher interest burden.
1. VA Loans: Exclusive to veterans. This source of financing includes 0% down payment, a fixed interest rate, and a long-term loan.
2. Hard Money Loans: Hard money means hard asset. This type of loan involves less detailed contracts and instead uses what you currently own as collateral. The loan costs tend to be steep, so these are mostly used in short-term projects such as remodeling.
3. Seller Financing: A rare gem. This strategy allows a seller with equity to let you pay the purchase price via installments or by using creative financing options such as leasing with option to buy.
Conclusion
To be a serious player, you will need a team and plenty of contacts. This is a networking game, remember? Once you have a core team you can trust, a wider team for support, and basic financial know-how, you will find yourself well on your way toward becoming a real estate investor.
