6 Things To Consider Before Becoming A Real Estate Investor
When it comes to the world of entrepreneurship, there’s very few consistent and reliable opportunities that are quite like becoming a real estate investor. Whether you become a residential or a commercial real estate investor, there’s always going to be a need for physical property. But, unlike other industries such as tech or finance, which might rely on both innovation and market changes for optimal returns, real estate depends on one sole factor: personal need.
Similarly to any other investment, there are factors that you must consider before investing in real estate. And, it’s not limited to location or the volatility of the market.
Real estate sales in the U.S. were expected to top $165 billion by the end of 2019, representing an annual growth of 4.8%. A recent survey from CBRE listed Denver as one of the top 5 markets for commercial real estate investments, reaching $12.5 billion in 2018 alone. And, with the average salary for real estate investors being just shy of $124,000, you may be tempted to jump right into the opportunity without weighing both the pros and cons. Before you do, here’s a few things to consider.
Don’t Go Into Real Estate Investing Blindly
Far too often, we hear from would-be real estate investors who saw a home-flipping show on TV and assumed that it really was that easy. It isn’t. It takes time, experience, and a lot of foresight in order to build both your knowledge base as well as your profit line. This doesn’t necessarily mean an advanced degree in real estate development. There’s actually thousands of successful real estate investors who haven’t even finished college. But, doing your homework and familiarizing yourself with both the basics of the real estate market and available resources will definitely help you as an investor.
Make Action The Cornerstone Of Your Game Plan
First time real estate investors who have done their homework often consider strategizing to be the most fundamental component of operating a successful business—and they’re right. Strategy is critical to any entrepreneurial venture. The problem is that over-strategization rarely leads to actionable results. Investing is always going to be a risky gamble no matter what venture you’re considering. But, if you want your investments to pay off, you need to focus on action just as much as analysis. Develop actionable goals including hard timelines, optimal ROIs, and the necessary capital to achieve these goals. You may not see immediate results or even an ideal one. But, this plan will provide you with a yardstick in which you can measure both your success and your shortcomings.
The Downside Of Leveraging
The notion of purchasing a property with a minimal down payment can be a tempting one. And if strategized correctly, it can certainly increase your profits. The problem is that leveraging multiple properties by taking out a second loan can be just as risky as investing in real estate without proper knowledge. You simply don’t know if you’re going to see a return which can justify the second loan, leaving you with potential mortgage debt. And, if you’re using non-bank affiliated financing options to purchase property, that debt is going to be even riskier; sometimes at triple the interest rate that you’d find with traditional lenders.
Consider Your Marketing Strategy
As a first time real estate investor, leads simply aren’t going to come to you without effort. While it may seem like marketing can be a time consuming and expensive strategy, you’ll find that you can conduct much of it in your spare time. Whether it’s actively networking with other real estate investors, keeping a social media profile, maintaining a website, or simply reaching out to potential sellers and buyers yourself, you need to sell yourself as much as any other business does—and given the competitiveness of real estate investing, maybe even more.
The Real Estate Market Demands Flexibility
Just like any other market, the real estate market has its ups and downs. And, while you can generally expect some degree of return on both your time and your investment, you may find that returns won’t always meet your expectations. If you’re finding that a strategy which worked for you last year simply isn’t working for you now, then you need to adapt to these changes. One of the chief causes of failure in real estate investing is rigidity. Allow your business model to be agile enough to assimilate to the most turbulent changes in real estate. Your success may depend on it.
Should You Manage Your Own Business?
It’s certainly more cost effective to manage your own business. But, how much do you truly know about the ins and outs of your business model? More importantly, do you have the time, patience, and energy to handle the minutiae of your business—including scheduling, client outreach, marketing, and expense tracking? As a real estate investor, you’re going to need to wear a lot of hats, and not everyone will fit you. Figure out what your own personal strengths and passions are (finding a mentor can be incredibly helpful with this process) and consider delegating the rest to an assistant or a business manager. It can be the difference between expanding your business and burnout.
Real estate investors must utilize proven strategies if they hope to survive in a competitive market. If you’re in Colorado, we can help. Find out more at Colorado REIA.