Xs & Os of Real Estate Investment
Football seasons is upon us. It is possible that your Saturdays and Sundays are now taken up studying, learning and even critiquing your favorite team's playbook as it unfolds on the gridiron. But did you know, that you can also use this football mentality to execute your own playbook for Real Estate Investment? Let me break it down for you.
Xs & Os of Real Estate Investment
There are endless ways to invest your money. Modern investing, such as buying an index fund or stock shares, has its perks. The problem is that it often takes years to make a noticeable profit. If you’re looking for a lucrative investment that will serve you well now and for years to come, real estate is the place to be.
Historically speaking, real estate is one of the most dependable ways to grow wealth. Real estate investing is a great way to diversify your investments so that your financial eggs aren’t all in the same basket.
But getting started with real estate investing isn’t as easy as you may think. Here’s everything you need to know to prepare to get your feet wet in this booming industry.
Start Saving - 🏈 Game Strategy
Every team needs a game strategy. REI is no different. Before you begin, you need a plan and your plan needs money. How much money do you think you need to get started with real estate investing? If your guess is in the hundreds of thousands or higher, you’re wrong. While you do need funds to get started, it doesn’t require you to cash out your life savings and then some.
Ideally you want to have enough saved so that you can put a 20% down payment on your first investment property. Buying an investment property listed at $75,000 would require a $15,000 down payment.
Before you can buy your first investment property, you want to save a healthy down payment. Spend a few years stockpiling as much cash as possible until you’re able to save up at least $10,000.
Choose a Market and Style - 🏈 Know Your Opponent
You can't go into each week's game day with the same mentality and strategy. You need to research you opponent and know their style of play to have the best chance of coming out on top of the matchup. Like in football, it is important to take some time to figure out which market(s) you want to target when investing in real estate. When choosing a market, pick one that has potential. Look at different data points and market factors like job growth, population growth, wage growth, and employment diversity.
When getting started in real estate investment, you must also choose an investing style. There are five main types of real estate investing to consider, including:
• Sole proprietorship – You buy and own the home by yourself.
• Partnership – You own the home with one or more other people.
• Real estate investment trust (REIT) – Similar to a stock that owns several properties and sells shares that real estate investors can buy.
• Syndication – You pay into a pool as a passive investor with other investors to buy a property.
• Crowdfunding – Investing in an online platform.
Most novice real estate investors typically start as a sole proprietor with a single-family rental. This is one of the best ways to understand the ins and outs of real estate investing with a much lower risk.
As you earn more experience and generate income, you can move into other markets. This includes options such as duplexes, multi-family homes, or single-family homes that you buy, fix up, and sell for a profit.
Choose a Strategy - 🏈 Write Your Playbook
There are many ways to tackle real estate investing. One of the most popular methods is with a cash flowing property. This involves purchasing a home, usually a single-family dwelling, and renting it out to tenants.
A cash flowing property is a great way to make passive income and is usually the easiest to start with.
Another option to consider is fix-and-flip. For this real estate investing strategy to work, you need to find off-market deals with highly motivated sellers. With fix-and-flip homes, sellers are usually looking to sell quickly because they lack the funds to pay for repairs and renovations.
When flipping an investment property, it’s important to:
• Buy at a low price
• Accurately estimate repair costs
• Sell for more than what you put into the property
Fixing and flipping a house can be quite lucrative, but it requires plenty of cash flow as well as a team of house flip contractors to get the home into a sellable condition.
Build Your Network - 🏈 Have a Strong Offense
Real estate investing isn’t something that you want to take on all by yourself, you need a team around you. To have the best chance of scoring the most points, you need a strong offense. Success in the real estate industry requires building a network of people that can help you every step of the way.
This includes experts and professionals such as:
• Investor friendly real estate agent - such as Working Moms Realty
• Lender
• Property manager - let us suggest Whitewater Property Management
• Real estate attorney
• CPA
It’s impossible to be a successful real estate investor on your own, especially as a newcomer. You must be willing to network and meet new people. Ask for referrals. And when you need help, ask for it.
Understand the Risks - 🏈 Build Your Defense
Though safer than most investments, real estate does come at a cost. Surely you've heard the phrase "Offense Wins Games, Defense Wins Championships" before. Well the same is true when investing. Not only do you want to have the best offense to help you during each play (flip), your defense needs to be strong to help you succeed in the long game. Before buying any type of property, be aware that there are outside factors that could turn a good deal sour.
The housing market is constantly ebbing and flowing. There’s always the chance that you may purchase a property and are forced to sell it at a much lower price because of marketing conditions.
This is why timing is so important when buying real estate. You don’t want to lose out on a good deal by waiting too long, just as you don’t want to buy a property without first ensuring you’re getting a solid deal.
You’ll also want to be mindful of large expenses. This is especially true if you plan to own rental properties. Be sure you always have enough cash on hand to cover expensive fixes, such as a new HVAC system or repairs after water damage.
Final Thoughts - 🏈 GAME DAY!
Dreaming of one day becoming a real estate mogul? Want to make your name known in the Chattanooga real estate industry? Getting started in real estate investment takes a lot of careful planning, smart decisions, and networking. Go into Game Day with a strong playbook, having researched your opponent, and practiced day in and day out to built your offense and defense. These are the keys to lifting the championship trophy at the end of the season. When done right, real estate investing is extremely lucrative and can generate short- and long-term passive income.
Win it all with Larossa Construction on your team! Contact us today so we can get to work on the gridiron for you.