Even though you can dive right into the business, it may not always be the best idea. Forging ahead without a plan in place is often a recipe for disaster. This doesn’t mean you need to know every step you will take for the next decade, but you should have some vision for at least the next six months. The table you set prior to your first deal not only sets the tone for your business, but directly determines your bottom line. Where many new investors go wrong is not fully grasping that the goal of real estate is to earn a profit and not to simply close transactions. By putting pieces in place before you make your first offer the foundation will be set for a healthy long-term business. Here are five areas you need to tighten up as you get ready for your first deal.
- Finances. Before you do anything else you need to get your finances in order. Your finances will be the first domino to fall in your business. It directly impacts the types of deals you are a part of, the marketing you do and how you structure your offers. When evaluating finances you need to project how much capital you need to run your household and then what is needed for your business. You should expect to go at least a few months without generating real estate income. Without a cushion of at least three months you are setting yourself up for failure. On the business side you are going to need funds for marketing and due diligence. You can find a hard or private money lender to fund the transaction, but you will still need some seed money to run the day to day operations. Always start by getting your financial house in order.
- Property/investment type. What kinds of properties do you want in your portfolio? Are you looking for short term profits or long-term deals? Can you run the deals by yourself or do you need outside help? Your investment goals should dictate the type of deals you get involved in. It is ok to start small as you are just getting going. Instead of swinging for the fences, you can look for properties with a smaller price tag that carry less risk. There are investors who have been in the business for years and never bought anything over one unit. As you learn the business and get more experienced you will find what property types are the most comfortable for you. Without knowing what you want from your first deal you will be pulled all over the place. One day you will look at small condos, the next large apartment buildings and the next mobile homes. Have a property type in mind and stick with them until you get a few deals under your belt.
- Location. Where you buy is the most important factor in generating appreciation. You don’t need to be involved in real estate to know the importance of a prime location. As you are looking to secure your first deal you would be wise to narrow your focus to only a few locations. It is tempting to jump at every new opportunity that comes your way, but this stretches you too thin and will leave you frustrated. Every day you will hop in your car and drive around looking at properties you don’t really want. The alternative is becoming an expect in two markets you are comfortable with. By focusing on only two markets you will know them like the back of your hand and be ready to pounce when new properties become available. Spend your spare time driving the market at different hours of the day and studying up on changes in demographics. The more you know about your location the easier it is to proceed.
- Team. Even the best investors know they can’t do everything themselves. Elevating your investing business means surrounding yourself with the best possible people. For starters, you are going to need a good real estate agent to help you find, or secure, deals. A good agent may not always be the most productive but the one you feel the most comfortable with. Like all team members they should be approachable and easy to contact. You should get the feeling you are on the same team and they always have your best interests in mind. The same should be the case with your contractor, attorney, mortgage broker and business partner. Don’t wait until your offer is accepted to start putting your team in place.
- Business mindset. Investing in real estate should be treated like a business. That means you need to constantly stay on top of your data, numbers, marketing, lead generation and networking. Regardless if you invest full time or not you should spend some time daily on growing your business. You should have systems in place and ways to track everything you do. If you become lazy with your business at some point it will eventually come back to bite you. You should be able to handle multiple deals at once and juggle multiple offers. Without proper organization and accounting your business will suffer.
Being strong in these five areas gives you a foundation to tackle anything that comes your way. Once you are comfortable you will be ready to handle your first deal.