Are you tired of secrets?
“The secret to beautiful skin.”
“The secret to finding love.”
“The secret to building wealth.”
Every advertisement today seems to promote some “secret” that the advertiser seems to know but wants you to pay for. The real estate investing world is no different.
Many real estate internet marketers want to share their “secrets” to success with you for tens of thousands of dollars and no guarantee of success.
However, real estate investing is not a new endeavor, and success is not found in a secret strategy but in tried and true steps that work. Today, I want to share with you the seven non-secret steps to getting started investing in real estate.
How to Invest in Real Estate
Just like those who invest in stocks or build businesses, it takes time to build wealth and to weather the storms that the market may toss around. Decide for yourself if real estate investing is really the path you want to choose.
If you’re wondering how to get into real estate, the following steps will get you on track. Here’s your crash course in Real Estate 101.
Step One: Educate Yourself on the Ins and Outs of Real Estate Investing
A huge mistake made by many beginner investors is to jump in before knowing what they are doing. Real estate is a vast field, and if you jump in before gaining a proper understanding of the methods and risks, your chance of succeeding diminish greatly.
However, education doesn’t mean spending thousands of dollars or flying to a private island to admire a rich guy’s villa. Instead, everything you need to to know about real estate investing can be found readily available in several key places:
- Books: Head down to your local library and check out several of their real estate investment books. Try to look for books written within the past five years.
- Podcasts: There are several excellent podcasts you can listen to, with hours and hours of free training, advice, and knowledge.
- Blogs: One of the best parts of learning from blogs is that the writers are usually real-life, current investors (not salesmen). Reading about the day-to-day struggles and adventures of real investors can help motivate and teach you.
- Forums: Forums are an excellent source of real estate investing knowledge because of your ability to ask questions and get answers from others in the community.
Begin by digesting more “general” information. As you find types of investing that intrigue you, dive deeper into those areas. You don’t need to become an expert at everything, just one niche. So discover that niche and learn everything you can about it.
Step Two: Make a Plan
Trying to invest without a plan is like trying to travel from Seattle to Orlando without a road map. Sure, you might make it, but you’ll probably make a lot of missteps along the way and it will probably take a lot longer than you’d like. A plan keeps you on track and moving in the right direction, so don’t skip this step.
To make your plan, begin with a piece of paper. Write down where you are today (your monthly income, expenses, assets, etc.) and also where you want to be. Then, simply write down a plan that will get you there, using math and common sense.
For example, perhaps you want to retire in ten years with an extra $4,000 per month in income. How many properties would it take to make $4,000 per month in income?
I like to see a minimum of $100 per month in passive income per unit, which means you would need to have 40 units within 10 years.
Perhaps that means buying 4 single-family houses per year for ten years, or maybe that means buying two duplexes per year for ten years. Whatever your goals are, map it out and see if you can make it make sense.
It’s also helpful to have a seasoned investor look over your plan to see if it’s attainable. As I mentioned earlier – online forums are a great way to interact with seasoned investors for this very purpose.
Step Three: Consider Investing in REITs
Real estate investing traditionally involves buying properties, which we’ll cover in the following steps. If you’re looking for a less involved, highly rewarding alternative, you may want to consider investing in what’s known as a REIT.
Short for Real Estate Investment Trusts, REITs allow you to invest across multiple properties. Think of them as mutual funds for properties.
REITs let you diversify your investments, putting your money into commercial, residential, retail, and resort properties. That diversification also equates to less risk and solid returns.
You can take it a step further by investing with Fundrise, an eREIT that allows you to get in on real estate investing with as little as $500. The company boasts impressive returns and alleviates the stresses of traditional real estate investing.
If flipping houses or managing a real estate property sound fun to you, though, which they absolutely can be, read on for the steps you need to take to make the most of your real estate investment.
Step Four: Prepare Your Financing
While it might seem a little backward, it’s important that you understand how you are going to pay for your real estate investment before you jump into finding one.
Many people try to find a property, but are disappointed when the financing doesn’t work out the way they wanted. If you don’t have all the cash you need for a property, talk with several local banks or mortgage lenders to learn your options.
A typical real estate investment will require around 20% down payment, though some banks can go as low as 5% (or 3.5% if you plan on living in the property.)
Step Five: Find a Real Estate Investment
At this point, you are in danger. You have committed to this life, gained a solid education, made a plan that will help you reach your goals, and have your financing in place. However, the easy part is done.
Many, at this point, get struck by “analysis paralysis” and never actually step out to make their plan a reality. This is the danger that every investor must pass through. If you’ve successfully completed steps one through four, don’t let fear hold you back.
Get out there and start making your plan a reality. The best way to do this is to actually start looking for your property.
Before you start shopping for the perfect real estate investment, make a “criteria list” that defines exactly what you are looking for (as you determined when making your plan in step three). Your criteria list should include:
- Property type (single family, duplex, etc,)
- Condition (nice, ugly, turn-key, fixer-upper, etc) and
By carefully defining your criteria, you are able to quickly weed out the 99% of properties that won’t fit your plan. Shopping for anything, including real estate, tends to bring out our emotions. Stick to your criteria to keep your emotions in check.
Step Six: Offer, Negotiate, and Close
At this point, you will probably want to connect with a good real estate agent who understands real estate investments (ask other investors for recommendations).
Let your agent know your exact criteria list, and begin looking at properties with your agent. Typically, an agent is paid by the seller which means it’s free for you!
Once you find that property, your agent will help you negotiate with the seller and get the best deal possible. Remember to keep your criteria in mind when working through the negotiation process!
Once you have a deal agreed on by all parties, be sure to hire a qualified inspector to look at the property and look for any unforeseen costs. This period is known as your “due diligence period.”
Depending on which state you live in, you will “close” through either an attorney or a local Title company. Congratulations! You are now an investor!
Step Seven: Manage Your Real Estate Effectively
While it might seem you are finished with your real estate investment plan, the real test is just beginning. Even a great investment, if managed poorly, will quickly become a poor investment.
If your plan included managing the property yourself, be sure to learn all you can about being an effective landlord. Also, keep connected with local investors and keep your skills sharp.
If, instead, you plan on hiring out the management to a professional property management company, be sure to interview several managers to find the best manager possible.
Get references from other landlords, and even after hiring a manager, be sure to keep on top of them to make sure your property is running at peak efficiency.
Start Investing In Real Estate Today
While investing may seem complicated at first, it really can be broken down into these seven easy steps. You don’t need to pay for “secrets” to become a successful investor, but you do need to have a plan and do your homework.
What do you think about real estate investing? Are there any “secrets” you want to know the answers to? Leave your comments below and let’s talk!
Joshua Dorkin in the founder and CEO of BiggerPockets.com, the massive online real estate investing community. BiggerPockets.com is home to over 110,000 members, over 500,000 real estate forum posts, a real estate blog with over thirty contributors, and the popular (and free) Ultimate Beginner’s Guide to Real Estate Investing and Ultimate Tenant Screening Guide.