The first step to getting started in real estate investing is being ready to buy real estate. Of course, that seems obvious. What most first time investors may not understand is that when you buy real estate for investment purposes, it is not the same thing as buying real estate for personal use. When buyers are looking to purchase their primary residence, they should be prepared to take their time and find the perfect home. When you buy for investment, the opposite can be true.
Buying Investment Real Estate
Buying real estate for investment is obviously intended to generate a financial return. While a lot of homebuyers will look for primary residence property that will be a sound investment long term, they will likely not place financial return at the top of their list of priorities. The opposite is true for those who buy real estate for investments.
It’s important for investors to determine what kind of investment property their looking to buy. Is it a quick flip that they hope to make money with small cosmetic updates? Are they looking for a higher profit margin with a property that needs significant amounts of work? Are they looing to buy real estate for a long-term rental investment property?
The answers to these questions will likely change the criteria of the property they buy. This is where the timing comes into play, and investors looking to buy will need to be prepared to move quickly. In most competitive markets, with Dallas/Fort Worth being a prime example, investors will need to be aware that they are competing with other investors. Be prepared to pull the trigger and close quickly in you want the best deal. A successful real estate investor buys a diverse list of investment properties, and buys them quickly. Unless you’re only looking to build a rental portfolio, you will make your money by buying and selling properties. This means, you will need to know the market inside and out, and know what properties will bring you the highest return on your investment.
For example, lets say you’ve found a wholesale property that you think you can buy and sell quickly without touching, but your profit margin will be smaller than if you spent a few months doing a complete renovation. Some questions you should ask before you buy:
- Do I have the time and resources for a longer-term project?
- Is my time worth the additional profit?
- Will I be better served with a smaller profit and faster turnover?
If you have the capital to purchase the property and make the repairs, then you should consider the full renovation. If on the other hand you need a quick cash infusion, and the delayed profit return would be more trouble than it’s worth, then go for the wholesale investment. Something to keep in mind with a property that could go either way: you can in fact go either way. If you buy smart, and the property could make money as wholesale, or it is a good investment as a complete rehab, then you’ve set yourself up for success. If you have trouble selling it wholesale, you can use the rehab as a backup plan.
You should be cautious when using this approach though. If you’re buying at a price you’re not comfortable holding for a few months, a rehab may not work. You always want to make sure you leave yourself options to get out of a property. Any real estate investor who’s been around for a while can tell you about buying property they later regretted. It’s all part of the industry.
Knowing where and when to buy real estate
A big part of being successful in real estate investing is knowing the market where you will be buying and selling, and knowing what it will take to get rid of a property, or how much profit to expect with any given investment. This will take time and experience, but can be streamlined by learning as much as possible about the industry. Find successful investors in your area, and make it a point to stay abreast of what they’re doing. Follow them on social media and subscribe to their blogs. In some cases, you might even be able to partner with them on your first few deals.
There are always opportunities to learn from the success of others, and you’ll often find that many successful investors are more than willing to share some tips from their own experiences. The key is to recognize the importance of learning from others. You can save yourself time and money by applying the lessons learned by others to your own business plan.
A good place to start with your research is local real estate news and local professionals. Look for other investors or local Realtors to help you better understand your market. Be diligent and use whatever tools you may have available. There are a number of investors who prefer not to use a real estate agent to buy real estate. If you’re new to the game, you should consider using an agent for the first few deals until you’ve developed some first-hand knowledge of real estate investing. Sure, you’ll have to pay commission, but losing 6 percent of a sale is more cost effective than buying a bad investment. Or, worst-case scenario ending up with a property that you lose money on because you didn’t make a good purchase. New investors will often have to learn some hard lessons.