Are you thinking about becoming a real estate investor? Investing in real estate is a terrific way to generate income. Regardless of whether you are trying to generate profit fast or are looking for a long-term income, there are strategies that fit many budgets and investor profiles. The one thing you need to remember is that “MANY” does not mean all. Not everyone is in a spot to assume the risk associated with real estate investing. Not everybody can afford it, and not everybody will succeed.
As a private lender in Virginia, we’ve honed our skills to differentiate novice real estate investors poised for success from those are yet not ready to take the plunge. In comparison to many of our competitors, being a first-time real estate investor is not an underwriting kiss-of-death. Our lending philosophy is simple: whether you are a relative newbie or a grizzled investor, you should be well-positioned to make money on a particular flip.
Are you ready to see how you fit?
Having the funds and time to commit.
Not every person can spare the time needed for real estate investments. Flipping a property is not a “Get Rich Quick” scheme, nor is it something you can sweep aside due to your normal daily hustle and bustle. It is an investment strategy that needs access to funds, time, and your willingness to commit to both. Of course, the pricier the project, the more of your own personal funds will be needed. Being a real estate investor, also, takes time. Identifying the correct property and supervising the rehab project takes time. Not everyone has spare time, which is often evident by phone calls we receive from prospective borrowers. Often, they ask us “Can you call me back at 6 pm tonight, after work?” or “Can you call me on the weekend?” We can, and will, but how are you going to manage your rehab when your lifestyle is restrictive? You need to ensure that you can stay actively involved throughout each phase of your investment.
Financial reserves will be needed.
Hard money lenders who allow their borrower to commit every last cent for the transaction is setting them up for failure. Why? Any seasoned lender or real estate investor knows that there will be other expenses that will need to be paid. For one, the monthly interest rate that is due to the lender. You may also have HOA fees, utilities, and—most notably—unanticipated rehab costs. They can all add up, and guess who is covering all these costs—YOU! The reality of the amount of reserves will be contingent on the overall size of your investment, but $7k to $10k is unquestionably the minimum.
Having some experience.
Not all first-time rehabbers are created equally. Some may have bought and sold numerous primary residences, and others might have a portfolio of rental properties. You might have some experience in real estate because you are an agent, a contractor, an architect, or a property manager. Ask yourself what qualifies you are a real estate investor and what skills you have that would make your first flip successful.
Bona fide relationship with a creditable contractor.
Among some of the aspects that make first-time investing risky is that you may have to work with a team that you have no experience working with. Folks might be able to talk the talk, but can they walk the walk? A poor choice of contractor can put your entire investment at risk, including taking a substantial chuck out of your profit, and make your life a living Hell.
Before committing yourself to any investment, have your contractors lined up and vetted. If you do not have easy access to contractors who are reputable, dependable, and affordable, you might be biting off more than you can chew in becoming a real estate investor.
Have marketing ideas.
Now you think you might have all your ducks in a row but without an actual property to flip, all your planning is moot. We have seen several clients who have paid thousands and thousands of dollars to these “Real Estate Gurus” and now have access to all of their spreadsheets, calculators, and checklists. Still, they cannot make that ultimate leap to actually start looking and market for properties. We refer to this as “Paralysis through Analysis”.
The majority of real estate investing is common sense. Many first-time real estate investors can use their existing knowledge of management, bookkeeping, and marketing to earn money. The real niche is to able to identify the right property to flip. Ask yourself, ahead of time, “How am I going to do this?” Chances are, it’s not going to fall into your lap! I undoubtedly believe that the DC real estate market is a stupendous place to be. However, it is very competitive, the supply is tight, and number of distressed sellers are dwindling. A talent for unmasking homes that provide the profit margin is fundamental to your success as a new real estate investor.
Do you think you have what it takes?
Torsi is a professional blogger.