Most people dream about what they’d do with an extra thousand dollars each month. Some of us even plan what we’d do if we won the lottery. Fewer people today never see that extra boost to their financial portfolio.
Most of us don’t have a portfolio.
But not you! You no longer dream about how you’ll buy that property down the street. You’ve already bought it, renovated it, and rented it out.
But how do you go from single property investment to real estate mogul?
One well-planned step at a time.
We’ve put together 11 tips created for the investor who is ready to move from buying that first property to earning the title of expert cash flow generator.
1. Treat It Like a Business
One mistake people often make when buying investment property is not treating it like a business. When you approach any investment casually you limit your level of success. If you’re only interested in dabbling, real estate may not be for you.
All business endeavors should start not just with a dream, but a solid business plan. A business plan isn’t solely for your benefit. When you meet with prospective investors, they’ll expect a well-designed presentation of your plan.
As you develop your business plan, set goals.
2. Set Goals
Real estate can take you on one of the most exciting adventures of your life. It can also take you down many different paths. Staying on course will be difficult if you haven’t set goals.
Map out your one, three, five, and ten-year milestones. Make goals both specific and measurable.
Making money isn’t a specific goal. Purchasing a certain number of properties over a specific time period so that you can replace your current income is a specific goal.
Measurable goals go beyond the desire to make money or be the top investor in your area. Measurable goals use benchmarks as a way of ensuring an investor that they’re on track.
If you set your annual rate for return on investment at 6%, that is a measurable goal. Make sure you also set attainable and realistic goals.
3. Learn the Business
As a first time investor, you may not have had time for education. Now that you’re a little further into the game, you’ll have many learning opportunities. Take advantage of them all and make learning about the business of property investment one of your goals.
Consider taking a course. You can find courses online—some courses are free but plan on paying at least a nominal fee for the most helpful information. Many community colleges also offer courses on investing.
Check out your local library for both books and workshops. Read books on buying, selling, and renting. Make sure the books you read are current because techniques do change over the years. Also, stay away from promoting get rich quick schemes books.
Part of your learning process should include learning about your financial status.
4. Check Your Credit Report
If your plans include financing your investment properties, make sure you check your credit report. Your current investment could have improved your credit rating but before applying for further financing, do a quick check.
Lenders prefer a FICO score of 700 or higher for investment property loans. You may also find lenders with less strict credit score requirements. Be aware that lower qualification standards may also come with higher interest rates.
Look at your debt-to-income ratio as well since lenders include this in the loan approval process. One way you can lower your ratio is by paying down credit card debt and vehicle loans.
You can access your credit report for free once a year from each of the major credit bureaus.
Even if you use other people’s money you shouldn’t ignore your own potential credit issues.
5. Other People’s Money
Most real estate investors, especially those new in the game, don’t have all the necessary funds for their investment projects.
A successful property investment business requires investors. This is where your well-constructed business plan comes into play.
At the beginning of your investing adventure, most investors will come from your immediate network of family and sometimes, friends. These are the people who know you well and believe in you.
Once you’ve made a few successful investments, you can grow your network of investors and find people outside of your immediate circle of influence.It may happen slowly, but as your reputation grows, you will build your network.
6. Earn a Good Reputation
One of the biggest challenges investors face is building a reputation and credibility. It’s also a major key to securing investors.
Certainly, your financial standing impacts credibility but don’t let a poor credit score, bankruptcy, or some other financial issues discourage you from fulfilling your dream of owning investment properties.
While past financial issues may pose challenges they don’t automatically disqualify you from investing. Make a point of cleaning up bad debt and work on building new credit.
Another part of building your identity is gaining experience. People interested in investing in your projects will look at your level of experience and your track record.
Most experienced investors already know your competition and will make comparisons between you and them. Your accomplishments will make you stand out over others in your field. Create a name for yourself that will make investors jump at the chance of being a part of your network.
Just as you build your reputation, you’ll also rely on the reputation of others in your network—like your realtor.
7. Hire A Good Realtor
Your realtor should be a key member of your team. And you don’t want just any real estate agent.
Search for realtors who have experience working with investors. Not all realtors have the experience or even understand the nuances of property investment. Most realtors deal solely with helping buyers find homes, not properties.
Realtors who enjoy working with investors may take courses in specialty areas such as foreclosures. Courses are great but make sure they have the experience as well as the education.
Another essential member of your network is your lender.
8. Shop for Your Lender
Unless you depend only on private investors (other people’s money), you’ll need a bank or mortgage broker.
Similar to your search for a realtor, you don’t want just any lender. Look beyond who offers the best interest rate when shopping for a lender. As a real estate investor, you want a lender who can help identify the best loans available to you.
You have options! Mortgage brokers work for financial institutions and package loans their underwriters. You can also find national lenders who specialize in lending to single-family investors.
Look at community banks as a financing option as well. Community banks make relationship building easier for obvious reasons. They also tend to give a little more leeway because they keep their loans in-house.
Understanding loan packages available to investors should also help you narrow down your choices for a lender.
9. Research Loan Packages
FHA loans and 203K loans are attractive because they offer financing up to 96.5% and excellent interest rates. But they’re only available to owner occupants. They’re certainly not off-limits to investors but you may end up buying a multi-family property and living in one of the units.
Another loan option is a Fannie Mae–backed loan. If you have good credit and can meet the income qualifications, you may qualify for up to ten of these. The caveat is that they can’t be taken out under your business name.
Take time and research loan options so that you can maximize your purchase power and avoid time-consuming mistakes. Once you choose a realtor, a lender, and a loan, you’re ready for property hunting!
10. Look Outside of Your Comfort Zone
Now that you’re shopping for more properties, you may feel tempted to buy within your comfort zone—your own geographical area.
While you may find the perfect property close to home, don’t limit your search. Often you can find better rentals in locations a little further away from where you live.
Often new investors think they should stay close to home so that they’re available to tenants. Hire a good property management company and let them take care of repairs and field tenant questions.
Also, don’t make the mistake of looking only at your local Multiple Listing Service (MLS). This is where your specialized realtor can help you find properties other than the standard listings.
On your own, you can check out real estate auction sites. On those sites, you may find an excellent selection of properties in other areas.
Another source of help with finding potential investments is through membership in an investment group.
11. Join a Property Investment Club
Joining a property investment club puts you in direct contact with other investors who typically have more experience and more connections than you do when first starting out.
The networking opportunities are priceless. Real conversations with real investors mean you not only learn from others but get inspired when hearing their success stories.
There are investment clubs where members pool their resources and purchase properties under a business entity. This is an excellent option for investors who may not have the credit or cash for their own investments.
Hanging around successful people can make a positive impact on your outlook and your investing habits.
Ready for Your Next Investment?
From building your business plan to signing your loan documents, you have your work cut out for you! Whether you’re a beginner or have already made your first investment, we hope this article helped you identify a few key tips for success.