Get in the game
The real estate game is exciting and stressful, but can be a rewarding adventure. Jumping off the blocks and diving right in is the first step. Don’t stay on the sidelines too long, or analysis paralysis might creep in. In most cases, the benefits outweigh the risks.
Make a decision to get into the game and get started.
Choose your teammates wisely
Many people overlook this before purchasing an investment property, but it's crucial to think through.
If you’re considering direct investing, are you going to engage with a business partner? Buying property with friends and family might seem like a fun bonding activity at first, but mixing business with pleasure might be difficult down the road. If you plan to purchase with a friend or family member, setting boundaries and guidelines before the process begins is a key to success.
Who is going to be collecting rent and taking tenant phone calls at 2 a.m.? Do you want to be a hands-on landlord or will you hire a property management company? If you plan to hire one, interview the company before closing on the property so you have a solid understanding of operations during ownership.
Being a landlord through direct real estate investing isn’t for everyone and passive real estate investing is a great option. The primary passive investing opportunities include private equity investing, participating in real estate crowdfunding, or investing in a REIT.
Choose a fund manager carefully. This will save your frustration, headaches, and impact ROI down the road.
No one wants a lazy teammate who isn’t willing to put in the work to be successful. Your choice of teammates will likely inform all other decisions in your journey to the real estate investing podium.
Put in the miles
Research, research, research. Read articles, follow investors on social media, listen to podcasts, attend webinars, and join forums. Take notes. Soak up as much information as you can.
If you decide to go the passive investing route, do your due diligence when researching the fund manager. Research the manager’s investment thesis, track record, team, and fund structure before signing up and sending capital their way.
If you plan to become a direct owner/operator, find successful owner operators and learn their journey.
All great athletes and teams review competitors’ tapes, and for good reason. Real estate investors and personal finance professionals are keen to share successes, failures, and advice for new investors. Use this to your advantage to create a competitive investment strategy.
Newbie real estate investors should have a solid understanding of asset classes, investment strategy, return metrics, and property management/landlord best practices. An infinite amount of information, tips, and resources exists online, oftentimes free of charge.
Some resources to get started…
- Four ways to start investing in real estate
- What is a cap rate?
- Real estate return metric glossary
- An Intro to Real Estate Asset Classes
Have a game plan and stick to it
The aforementioned research plays an important role in forming an ideal investment strategy. Developing and documenting this game plan is crucial to success.
Look at available capital and analyze risk comfortability. How much can you contribute to a REIT? Are you comfortable with a third-party managing my capital? What loans are available? How will you afford the down payment? How much additional capital can you comfortably set aside for unexpected expenses or emergencies?
“I’m going to acquire XYZ assets that produce a $X cash-flow.”
“I’m going to invest in a private equity fund that targets and acquires Class A multifamily properties.”
“I’m going to use this bank financing strategy.”
“I’m going to employ someone to support maintenance requests.”
The amount of capital available will likely determine location and operations. Are you comfortable investing in properties across the country? Would you prefer to invest in your own community?
As for the location, investors must understand what drives demand in an area. Is it located near public transportation? What types of jobs do people have that rent in this area? Who is the competition?
Make your way to the podium
Everyone has different goals and definitions of success. Some real estate investors may just want to own and operate one property near their permanent residence, but do everything in their power to create a stabilized ROI and great experience for tenants. Other investors want to invest thousands of dollars into a real estate private equity fund or REIT, sit back, and watch their investment grow over many years.
No goal is superior to another - but make sure your goals make you proud to be part of the game. Trust your training, don’t go out too hard. We’ll see you on the podium.