Are you a new real estate investor who is looking to find their first property? I am breaking down five simple questions for you to answer that will help you move forward and find your first real estate investment property!
When my family moved back to Toledo, Ohio I had lots of ideas for investing in real estate along with becoming a licensed realtor myself. We tested out a few too many at the same time and to be honest, it was a stressful first year back in our hometown. My original plan was to purchase mobile home parks with my partner, but I decided to pivot strategies once three of our deals fell through.
Next, we purchased a flip house that took us six months to complete and I learned SO much from this experience. During this time we also purchased a few rental properties, including a site unseen property purchase. We definitely jumped into the deep end with real estate investing and answering the questions below helped us to make as informed decisions as possible.
Questions New Real Estate Investors Need to Answer
1 | What is my investing strategy?
There are many different real estate investment strategies and it is important to know which one you prefer or would like to try. I mentioned that I tried to invest in mobile home parks, but it was really hard to break into. Investing in mobile home parks is very different from purchasing a rental property, flip property, or short team rental.
If you decide you want to flip a house, there are a few options with this investment strategy as well. One option is to live in the property while you fix it up to sell. We used this strategy three times while living in Denver. It is a great option for investors without a lot of upfront capital. The numbers and strategy look different if you purchase a property to flip more quickly.
If you want to invest in rental properties, do you want to find single-family homes, multi-family units, apartment complexes, etc?
2 | What is my ideal ROI (return on investment)?
How much money do you want to make for each investment to make it worth it? With a fix and flip strategy, you will generally have a number that you want to make once the property is sold. This requires research on the current market trends, the estimated cost of repairs, and other expenses. An average ROI goal for investors tends to be around 20%, but it is up to each investor. You may be fine with a lower ROI on your first few flips to learn how it all works.
Investing in rental properties is more of a long-term strategy. If your rental property has a mortgage, the benefit is that your renter will pay your monthly mortgage and ideally you will make a small profit each month. Admittedly, we were naive with managing rental properties and it was a lot of work to find renters, answer their call and fix any issues at the house for a small profit each month. If you hold the property long enough to pay off the mortgage, the return can be great.
If your goal is to own multiple rental properties and have a property management company do all of the work, I would do a little more research. Solid property management companies can be hard to find, and oftentimes require a minimum number of doors (properties) to even consider working with an investor. They also charge a fee that may wipe out any profit.
3 | How will I finance this real estate investment?
The most obvious way to finance your real estate investment is if you have enough cash. If you don’t have a pile of cash lying around, you can use a mortgage to finance your investment. I would recommend reaching out to a local lender to learn more about your options as an investor.
Another option for financing your investment is to find a partner. Working with a partner can lower your risk by requiring less money to finance, and having another person to help with renovations and manage the project.
4 | What location do I want to focus my investment in?
I am sure you have heard it a thousand times, it is all about location. Investors want to find the worst house on the best block. Depending on the strategy you have chosen and the amount of money available for your investment, you can begin to narrow down the area where you want to invest.
Narrowing down the location will also help estimate improvement costs based on the comparative properties in the area.
5 | What immediate steps can new investors take to find their first property?
Find a Knowledgeable Real Estate Agent
Beginner investors can immediately start building their team of experts. This includes a knowledgeable real estate agent who can provide guidance on resale value, new properties on the market, managing the transaction and the go-to person for all questions around buying/selling properties.
Work with your real estate agent to set up automated email alerts for all properties in your ideal location and within your budget.
Find a reliable mortgage lender
A reliable mortgage lender is another expert that new real estate investors can start connecting with. Lenders with experience in investment properties can guide investors through loan options, bundling multiple properties into commercial loans, refinancing, BRRRR strategies.
Start listening to real estate investing podcasts like Bigger Pockets. The more you learn the better off you will be.
My final piece of advice for new real estate investors is to take a calculated risk. There are so many people who want to invest in real estate but never take the leap. If you think you found a good deal, don’t be afraid to act on it. Have a few exit strategies planned and then learn through experience.