What New Investors Need To Know In A Recessionary Economy
Congratulations on leaping real estate investing! But for you to survive this uncertain market, you will need to take one piece of advice to heart. Because it can be very easy to get caught up in the news, what people are saying around you, and just a gut feeling that you might have about a project or opportunity. And that advice is actually very simple. You need to know and focus on fundamentals to get through any challenging financial time.
Mastering Fundamentals Of real estate investment
Everywhere from professional sports to real estate investing, success is built on a strong foundation that is often referred to as the fundamentals of the sport, business, or whatever you are talking about. When a coach speaks about a team’s terrible loss, the focus is always pointed toward fundamentals. There is no emphasis on a new trendy diet, practice method, or deep strategy. The coach always promises to take the team back to their roots, foundation, or fundamentals. This thinking is the same for real estate investing. And it might even be more critical for you because you are not just losing a game, you are losing money on a bad investment. And here are the four pillars of your investment business that you need to focus on- your fundamentals that will support your business and provide stability:
- Finding Deals – The fuel for the machine that is your real estate business is deals. If you are not finding deals, good deals, then your business is stagnating or even failing. And the first step it to determine the deals that hold the most considerable appeal for you. Your niche will be the area that you specialize in and that you are best at turning into a profit. Once you know where you want to focus, you need to build a network to help you find those specific types of deals. Check out forums, business acquaintances, realtors, friends, and family members. No matter how you do it, keep your pipeline full, and keep searching for good deals in your wheelhouse.
- Analyzing Deals – As you find deals, the next step is to have a consistent and reliable method of evaluating each opportunity. Rental properties need to be evaluated to balance the income versus the expenses. If you are looking at a flip, determine your after repair value and your budget for repairs. Also, be sure that you can cover the carrying costs for the life of the project. The more opportunities you evaluate, the faster and more accurate your results will become. At some point, you will find that this process becomes second nature, and you can complete a great deal of it in your head.
- Financing Deals – The current pandemic has thrown lending into a strange realm. But for the most part, all of the standard options are still available. You have a choice of a traditional lender, private funding, or hard money. The traditional lender is going to require about 20-25% down from a new investor. Private money is often a family member, friend, or acquaintance who agrees to lend you money. These deals have fewer requirements but can get complicated by the relationship unless everything is clearly defined in writing. Hard money is an expensive option and is not a great idea for a new investor, but it could be used as a last resort. And there is one final option that you will sometimes stumble upon. Seller financing is basically an agreement between you and the seller. They act as your bank, and you make the payments directly to them. Again, be sure to have all of the details clearly defined in writing to avoid any future issues.
- Managing Deals – This aspect is the one that can undercut all of your perfect work on the other three items. You can find a great deal, run the numbers to know it will work, and then secure affordable financing. But if you can’t get through the reno process, find a tenant, or locate a seller, then the deal will fail. You always need to have a clearly defined end goal and a defined path or process to reach that goal. If you are new to the real estate investment business and are planning to amass a portfolio of rental properties, it is a good idea to get some help from an experienced property manager. This step allows you to focus on acquiring the properties while a seasoned professional assists the business’s management side. Over time, you can transition to being your own manager, or keep that property manager in place. But it takes some of the stress off of your shoulders.
Finally, remember that it takes time to learn the fundamentals of any business. In the beginning, you will want to search everywhere for deals to get the process started. But over time, you will determine the methods that work best for you, and you can focus on those sources. The more deals you investigate and evaluate, the faster your evaluation skills will develop, and the easier it will be for you to work through finding funding and then managing the project. But once you get your business off the ground in this challenging climate, you will know that you have the skills to weather any economic challenge that you might encounter in the future.