The Best Piece of Advice for Real Estate Investors
Whether you are brand new to real estate investing or are a seasoned real estate investor, the goal is to be successful. Success as a fix and flip investor, buy and hold investor or real estate wholesaler is typically defined by profitability. How can you turn your property purchases into good money?
Many of the home buyers in the PropertyLark investment network are looking for sound advice. If you read our buyers’ Blog, you will find plenty of great articles on a variety of different real estate investment subjects. However, if we had to boil it down to one most important piece of advice, we would say the most successful real estate investors are those who have plans.
What Entails Real Estate Investment Planning?
There are different levels of planning involved in real estate investment. There is business planning, project budgeting, renovation planning and execution and financial planning. Your investment plan needs to be thought through carefully. Every detail needs to be covered. Then, you must implement your plan and be willing and able to make adjustments if needed.
General Investment Planning & Budgeting
Let’s use a fix and flip investment as an example. Many inexperienced house flippers fail to make significant profit (they often lose money) because their plan is inadequate. The first component of the plan is knowing what your investment strategy is. If you are flipping the house, then you need to know exactly what that entails and plan out all the steps to make it happen. What is your business structure? How is the project being funded? Who makes up your team? What roles will they each have? What will you do with the profits when the property is resold? These are all important questions to ask when mapping out your overall investment strategy.
Next, you need an general budget in mind. What are you able to spend on a property purchase and what kind of profit do you need to see to consider your real estate investment a success?
Target Market & Property Search
Now, you can start getting into more specifics. You have to identify a market where you want to buy property. You should perform thorough market research to find locations that can provide a higher return on investment (ROI). Then, you can start your house search. This should go beyond just scrolling through the local MLS. The most successful real estate investors build relationships with banks/lenders, real estate agents, probate attorneys, county clerks and other resources that may help them find off-the-radar properties. They join investment networks like PropertyLark to find great off-market deals. The point is you may need to get creative in your property search.
Once you identify any properties that could have fix and flip investment potential, you have to run detailed analytics. This involves understanding what the property will cost you to purchase, projecting what expenses will be involved to renovate it and forecasting what the property could be worth on the resale market when the renovation is complete. It is important to be ultra-conservative in your projections so you can get a realistic picture of the potential ROI.
Once you have found the right property to purchase, be ready for more intense planning. You have to develop a project-specific budget, renovation plan and timeline. You need to assign duties and understand who is doing what throughout the process. You may need to hire contractors or specialized service providers (electrician, plumber, roofer, etc.) for certain aspects of the renovation. Every single detail needs to be covered, planned out and budgeted to ensure success. Flying by the seat of your pants and “figuring it out as you go” is a recipe for failure!
Part of your planning will also need to entail your resale strategy and process once the renovation is complete. Are you hiring a real estate agent? Are you licensed yourself? What is your ideal asking price and acceptable selling price range? How long will it take to sell? You’ll also need to constantly monitor market conditions and home prices in the neighborhood because it could impact your renovation budget/plan along the way.
What Happens Next?
Once you have sold the property and (ideally) have made a tidy profit, you will need to know what happens next. Is this a one and done investment opportunity or are you reinvesting some or all of those funds into another property flip? This circles back to your overall investment strategy and business plan, which will likely need to be updated between each project as your budget grows and you gain valuable house flipping experience.
We used house flipping as an example, but the same basic planning strategies apply to buy and hold investments and all forms of real estate investment. The point is you need a complete plan if you want to be as successful as possible at investing in real estate.
Look to the right of this page and check out our free e-book on this very subject of real estate investment planning. It is a step-by-step guide that will help you become a better real estate investor. You may also want to join the exclusive PropertyLark investment network for more resources, property analytics and home search tools.