Real Estate Investing – Top Strategies Real Estate Investors Use to Boost Their Businesses
Have you ever wondered why some real estate investors seem to make everything look so easy? We’ve all heard stories about how an investor made over $100,000 in a week by selling a house. Or maybe about how another bought a multi-million dollar apartment complex and walked away with cash at closing.
So how do these people do it? And is it something that the average person on the street can learn to do? Well those are some of the same questions I had when I first started in the business. So I spent months of research and tens of thousands of dollars to learn what strategies these successful people use that the rest of us don’t. What follows is a brief summary of what I learned. Some may surprise you, others may not. However, I found that these are common words of wisdom from all successful investors.
1. Real estate investing is a business, not a hobby
All of the successful real estate investors I know run their ventures strictly as a business, even if it’s part-time. This means establishing a Corporation, S-Corp, Limited Liability Company, Limited Partnership, General Partnership, or typically some combination of these entities. Notice I didn’t mention sole proprietorship? Talk to a knowledgeable real estate attorney in your area to get a better idea of which ones are right for you and your goals. The right entities will not only protect you and your ASSETS, but will also allow you to take advantage of certain tax advantages that you would not otherwise have. If you stop reading here and don’t accept any other advice from me, please do this one.
2. Build a team of experts
Few if any business owners succeed without a team of experts to guide them. These people can save you a great deal of time and money, and possibly even legal trouble. Your business team should consist of a good real estate attorney who understands state law and an accountant. I recommend finding an accountant who is also a real estate investor if possible.
You should also have a real estate agent in each area you are considering investing in, an appraiser, a home inspector, an escrow company, a mortgage broker, other investors, a general contractor, and an insurance agent. There are other specialists that should also be considered for special cases, such as an architect, a surveyor, an environmental company, etc.
3. Have a plan
Develop a business plan for your real estate investment company, even if you’re not new to it. After all, this is a business and few truly reach their potential without a good plan. I promise you, it will be worth spending a few hours to put it on paper. And it’s always good to review your plan often to stay on target.
4.Network, Network, Network
Real estate is a people business. If you haven’t already, be good at relaxing. Now I don’t mean the kind of used car salesman where you talk fast. Join your local real estate investing club, become a member of a church if you aren’t already, volunteer with Habitat for Humanity, just get involved! Get to understand what the needs of the seller or the buyer are. This means listening! Learn what other investors are looking for and who the local “players” are. You may be able to partner on a deal or recommend a deal to them that may not be exactly what you’re looking for. Above all, treat everyone you meet with respect, whether they are on your team, vendors, or buyers, and they will respect you. If you do these things, more business will come your way than you can possibly handle. I can think of much worse problems to have!
5. Know your market
Spend some time getting to know the areas in which you plan to invest. Go to a few open houses and talk to the agents. Drive around the neighborhood and look for “For Sale By Owner” signs, also known as FSBOs. Look for houses that appear vacant or in disrepair. Find out how many homes are selling in the area and what the local trends are. Talk to some of the local residents and learn what the community is like. Is there crime in the area, how good are the schools, is the area growing, what is the local demographic? This information will come in handy when the time comes to invest.
6. Never buy a property without at least one solid exit strategy
In real estate, you make your money when you buy, not when you sell. So what am I trying to say here? For every offer you make, you need to know exactly how you are going to make money from it. It could be like a rental that you should have a positive monthly cash flow for. It could be like a rehab and turn around for profit. Or maybe you can offer it as a lease with option to buy. However, it could be held for equity growth. Run your numbers for each strategy. If the numbers don’t work, don’t make the deal no matter how much you like the property!
7. Treat your agents like gold
Real estate agents can make or break your business and a good one is worth its weight in gold. They will do much of the legwork for you and provide you with potential offers. They know your areas inside and out and can steer you out of potential trouble. They will even find buyers for your properties and show them to you while you search for more offers. And, they work only for commissions based on the sales price of the properties they sell.
However, most real estate investors do not buy and sometimes do not sell properties at full market prices. This could directly affect your agent’s commission and their motivation to support what you want may decrease. I suggest paying your agents’ commissions based on the market price, regardless of the final sale price. Yes, it may affect your earnings a bit, but you will have a very loyal agent. And guess who gets the first phone call when an interesting property comes along!
8. Don’t be a pig
The old saying goes: “Pigs get fat and pigs are slaughtered.” The saying is also valid in real estate investing. Many new investors make the mistake of trying to get the most out of every trade and then wonder why they can’t find buyers. Don’t be afraid to leave something on the table for the next one, especially if you’re selling to other investors. It is better to make a lot of small wins over and over again than to make one big win. This strategy should get potential buyers lining up at your door when you have a property to sell.
9. Give away 10-15% of everything you do
I can hear you now, “He said what?” That’s right, give away 10-15% of everything you make. How you decide to do it is up to you, but I warn you that you may have to get creative. Steve, a mentor of mine follows this rule like a religion. In fact, in the first deal he made about $5,000 which he desperately needs, since he recently lost his job. He was on the verge of bankruptcy, but still he decided to give away part of his earnings. He decided to buy his pastor a new suit, something he had never had in his life. Although Steve was excited about making money, the look on his pastor’s face when he first used it made him feel ten times better. By the way, he got the word out pretty fast, and before you know it, he had three more deals in the works that brought in much, much more.
10. Deals, deals, deals!
You will never make money if you don’t start with an offer first. But for some reason this seems to be the biggest hurdle for most new investors. I like to use the “Shoot, Aim, Go” approach to bidding. Don’t spend a lot of time trying to figure out what the perfect offer will be, just make one. Most of my offers are made without ever having seen the property. Remember, if the first offer doesn’t embarrass you, it’s too high. I know a very successful real estate investor in the Tampa area who once offered $1 for a $14 million golf course! Granted, he eventually bought it for a little over $2 million and resold it a couple weeks later for a small profit. Only after you have the property under contract should you spend time determining whether or not the price is correct. Most successful investors will make 25 or more offers per week, of which perhaps only two or three end up being accepted. Of those, maybe one will make it to closure. But let’s see, one deal a week, $5-10,000 profit each…you get the picture.
11. Have fun
Like any business, real estate investing has its challenges. Sometimes deals fall through at the last minute, tenants can be a real pain in the ass, or you find out that the sewer line is collapsing at one of your properties and you need $15,000 in unexpected expenses to fix it. There will always be obstacles to overcome, but the rewards can be worth it. So have fun with it! If you really enjoy it, it will show, and suddenly the problems won’t seem so important anymore.
There are many more tricks to the trade depending on the niche you decide to invest in. But the basics are the same across the board. Apply these secrets and you too can become the next billionaire!