How to Become a Successful Real Estate Investor: A Comprehensive Guide
The potential for financial gain in the real estate industry is limitless. As a real estate agent or broker, you have the opportunity to greatly boost your income both in the short and long term by venturing into real estate investment. With your expertise in the field, you possess distinct advantages over novice investors. In this article, we will guide you on how to leverage these advantages to become a successful real estate investor.
Step 1: Analyze the Local Housing Market for Investment Opportunities
The first step to investing in rental properties – regardless of whether you are an agent or not – is conducting thorough real estate market analysis. The idea is to look at property price values and trends, available listings, and property types for sale. It is important to establish if the local market is a buyer’s market or a seller’s market to know what competition you should expect from other property buyers. However, as an agent, you have a major advantage in this regard compared to other investors. You know the answers to most or all of these questions, which minimizes the time you need to spend on market analysis. Furthermore, agents can buy investment properties even in hot seller’s markets much more successfully than other investors as they are expert property finders and negotiators.
Step 2: Evaluate the Rental Market
Once you decide that buying a property in your area is a good opportunity at the moment, you should perform rental market analysis. The goal is to identify what return on investment you can expect as a result of the prevailing rental rates and occupancy rates. You should assure that the local market can bring you a positive cash flow investment in order to increase the amount of money you make from real estate.
Furthermore, analyzing the rental demand and supply in the area will tell you whether traditional, long term rentals or Airbnb, short term rental properties bring a higher rate of return. This will help you choose the optimal rental strategy and focus your property search on the best property type for this strategy. Selecting the best rental strategy is crucially important for the success of a rental property business.
Once again, as a real estate professional, you already have much of the knowledge you need to complete the rental market analysis quickly and efficiently.
Step 3: Get Pre-Approved for a Mortgage
The next step in starting investing in real estate is getting pre-approved for a mortgage. As an agent, you know how important this is. Buyers who have been pre-approved are considered significantly more reliable and serious which is particularly important in hot seller’s markets where a few buyers compete for the same property. To get qualified, set up a budget based on your savings and income and bring all relevant documents to the bank. You should use your knowledge of local financial institutions that you’ve accumulated throughout your real estate career to focus on the best options. It is recommended to talk to a few different banks including both small local and big national ones. Different credit institutions offer various interest rates and other mortgage terms.
Step 4: Look for Properties for Sale
When investing in rental properties, it’s crucial to research the market and secure a mortgage loan. Once approved, focus on finding affordable properties. First-time investors must set a budget and resist the temptation to overspend on a house they love. Avoid this common mistake to safeguard your investment.
Buying an investment property is a business decision which should be based on calculations and rationality rather than on your emotions. Thus, make sure to focus your property search on homes for sale within your budget only to avoid getting tempted.
As an agent, having access to the MLS sets you apart from other investors, giving you a competitive advantage. However, don’t rely solely on the MLS. Explore off market properties for even more advantages like less competition and lower prices. Tap into your real estate network to find unlisted properties for sale.
In specific, contact clients to whom you sold a home a few years ago as they might be interested in buying a new bigger home in another neighborhood. Get access to homeowner data in your market and make some cold calls to see if someone might consider selling his/her home if a good opportunity arises. Don’t underestimate the potential of driving for dollars and take a look at “For Sale” signs in the local real estate market.
Another great source of investment properties are foreclosures, bank-owned homes, and short sales. To search through those, you can visit the websites of local banks and other financing institutions. Moreover, you should talk to other real estate agents from your network who specialize in this kind of properties.
Make sure to diversity your property search as much as possible as each source will provide you with different types of properties within different price ranges.
Step 5: Analyze the Potential of Properties
To buy an investment property, analyze various listings using rental comps to determine rental rates and occupancy. Consider recurring expenses like property tax, insurance, HOA fees, maintenance, and property management.
The difference between the rental income and the rental expenses will provide you with an estimate of the cash flow. When investing in real estate for the first time, it’s important to focus on properties that generate positive cash flow. This ensures that you make money instead of losing it. It’s crucial to calculate the return on investment for your property, both the capitalization rate and cash on cash return. A good cap rate and cash on cash return for rental properties are usually considered 8% or more.
To facilitate the process of analyzing potential investment properties, you should use the right tools. As a real estate agent, you’ll need time to analyze properties before buying them. This can take a few weeks, but it may be resolved by the time you’re ready to proceed. Alternatively, you can get access to various online calculators which will help you analyze properties in minutes.
Step 6: Buy a Property
The last part of the process of starting to invest in real estate is to actually buy a house. That’s something you are already an expert on as an agent.
Investing in rental properties is a lucrative strategy to make extra money for everyone, and comes with some additional benefits. Just follow the 6 steps outlined above to diversity your real estate career and expand your earnings.
