Getting started in real estate investing is almost always the hardest part of the journey. There's so much to learn, and it can be daunting for anyone looking into becoming a real estate investor.
When I first got started, it was a messy and unorganized affair that looking back makes me cringe with embarrassment. If only I had someone experienced to give me that initial guidance and reassurance that mistakes will be made, someone to guide me on how to best get started anyway and ultimately become a sophisticated real estate investor.
Here are the five major steps you need to take to become a real estate investor, how to decide what type of investing is best for you, and how to grow and scale your portfolio the smart way.
Step 1: Network and learn
Real estate investing is a team sport. This starts with building up your network of other investors and those who are already doing what you want to do. Look to join local meetups, real estate investing groups, and other events like conferences where you can meet like-minded people.
Networking isn't just limited to in-person events -- which are particularly challenging these days. There are hundreds of online groups, masterminds, and conferences that are both paid and free. This is where your education comes into play.
Do some online searches of online real estate investing groups, and start reading blogs and newsletters like BiggerPockets and Stessa. These are free resources and a great place to get started. There are also myriad free real estate podcasts available for you to digest.
You can also pay for masterminds, courses, and coaches. This is tricky because, on one hand, they can be extremely valuable early on, but they can also be a complete waste of money or scammy. It's best to get some referrals from other investors on the types of paid groups they're a part of or joined in the past. Don't get caught up in expensive upselling when you're first getting started. You need to save those funds for your first real estate investment purchase!
Step 2: Devise your action plan
What type of investor are you going to be? Are you handy and interested in fixing units up or constructing them? Or, are you like me and will endanger anyone within a 20-meter radius if you pick up a power tool?
Are you interested in short-term profits or looking to slowly build up long-term wealth through a buy-and-hold strategy? These are all critical questions you need to ask yourself now before you make the wrong decision on your first investment.
Fix and flip: This is a great strategy for those who understand renovations and construction and who are handy themselves. If you can do a lot of the fixing work yourself and have the time, then you're set for this strategy. The fix-and-flip investment strategy is a good strategy for immediate cash flow and short-term income.
Buy and hold: This strategy is self-explanatory. You find good income-producing assets, buy them at a good price, and then just sit on them for 10+ years. It's a great way to build up significant momentum in the long-term; however, it's not a get-rich-quick scheme. Where fix and flips is a cash-now real estate business, buy and hold is a cash later strategy.
New vs. resale: Many investors focus on new construction versus buying resale. There are several advantages to this; mainly, you get a brand new product in a brand new neighborhood. It's very easy to rent out this type of portfolio as well as maintain it over the course of the first decade.
SFH vs. multifamily: Most investors get their start in single-family homes (SFHs), townhomes, or condos. And there's nothing wrong with that. Others will jump in immediately to multifamily units like duplexes, triplexes, and fourplexes. The latter typically provides better cash flow from rental income but requires a bit more money upfront and more management resources after the acquisition.
You also need to consider which asset classes you're interested in: residential real estate, commercial real estate, vacant land, short-term rentals, and the list goes on.
Step 3: Build your team
The team sport aspect of real estate investing doesn't stop with your network. You now need a stellar real estate investing team around who helps you with all aspects of your business. This includes a lawyer, accountant, handy person, broker, real estate agent, and banker.
I've gone through dozens of these team members over the years, so don't be shy to try new ones if some don't work out. Where possible, you need to ensure that each team member has proven experience in the rental property real estate world.
For instance, a lawyer who is only used to real estate for primary residences will not be familiar with the nuances of investment property deals, negotiation, and leasing. The same is true for accounting, which will directly affect your bottom line if that professional isn't well-versed in depreciation and all the deductions real estate investors are entitled to.
Step 4: Execute
Now's the time to take action. Many beginner investors freeze up at this point. The idea is to take informed action and not get caught up in analysis paralysis. Here are some of the steps you should research and become comfortable with before executing your first investment.
Analyze: You need to make sure that after all the bills are paid, there's some money left over in the account. Simple as that. To understand how to analyze a property to uncover this, learn more about developing a proforma using a spreadsheet or software. This is the most important step in your investing journey. Will market rents cover all expenses, and then some?
Purchase: Using your newly established team, you can begin to put offers on properties that, through your analysis, you know will make good investments.
Stabilize: Investment property forecasting takes a bit of informed guesswork. Once you have the asset, now you get a better sense of the actual expenses and income on an ongoing basis. Record these, and use them for your analysis of future acquisitions.
Systemize: Document everything! Create to-do lists\ and lessons learned documents and start to build out your investment management as you would any other business -- using systems. Down the road, as you grow and maybe add more team members, you'll be extremely thankful you document and use systems.
Step 5: Revise, repeat, grow
The feedback loop on real estate investing can be long, and sometimes costly. As you learn lessons, and you'll learn a lot of them, revise your previous assumption or system to ensure that you don't repeat any of those mistakes.
In terms of wealth generation, becoming a successful investor in real estate is one of the best strategies to deploy. There is an old adage that more millionaires and billionaires have been created through this investment vehicle than all others.
Hyperbole aside, real estate is the best strategy I have found to date for creating financial independence and flexibility. You need to educate yourself and surround yourself with like-minded people and those who are executing at a level you aspire to. After you have your network, team, and knowledge, it's time to execute.
Everyone makes mistakes, and your first journey into the real estate investing world will be no exception to this rule. The key to being a successful real estate investor is considered and constant action-taking.