Beginning your real estate career is both exciting and intimidating. It takes tenacity, due diligence, experience, and a little luck to make a great career in real estate investing. When the time comes to make your first real estate deal, the experience is exhilarating. Still, it will be riddled with problems, shortcomings, and unforeseen challenges that can easily discourage the faint of heart.
If you’re preparing to embark on this journey, we’ve explained the five key phases of real estate that every investor should master.
Becoming a real estate investor requires a wholehearted commitment. The faint of heart typically don't survive. You must be willing to put countless hours into deep market research, relentless negotiations, expert-level policy knowledge, patient rehabbing, and proper property management.
You will rinse and repeat for success, but a good foundation starts with your first deal. Before fully committing to making your first deal and your career as a real estate investor, you must understand a few things.
A lot of people talk about wanting to buy properties. Many people attend seminars and follow fake gurus they believe will help them get off the starting block, but most people never do. It's a difficult process, and when people face a challenge or adversity in their journey, they tend to shy away from it. Total commitment means you're willing to weather the storm and come out of the other side a champion.
Real estate isn't a zero-sum game. Talk to your friends and family who may be interested in joining you on this journey. Network and find the people who can help you along the way, whether through finding deals, rehabbing properties, or expert guidance. There are plenty of people willing to help you out. Find them and utilize them as much as possible. Nobody does it all alone.
Many people feel they need to close on the first or second deal. There's always another deal. If things are a little bit off or something doesn't feel right about any particular deal, it's best to walk away. You want to avoid getting married to a deal you don't love or seem to be in trouble. Patience is a virtue in this game. Take your time and find the deal you actually want.
Finding your first real estate deal is a game of strategy. Treat it as such. There are a LOT of deals you'll look at. Having a game plan or a strategy for what you're looking to accomplish will help you narrow down your goals.
Do you want something off-market or below market value? Are you looking to flip and sell or hold and rent? Knowing some of these answers can help you navigate the greater market you will be examining and streamline your search to find deals with exactly the parameters you're looking for.
Take the time to map out the deals and properties you see (and like) to examine the neighborhoods and properties you're looking at. You'll be able to identify many trends through multiple perimeter metrics, including crime rates, school ratings, and proximity to city landmarks. Low crime rates and decent school ratings can indicate future growth in a neighborhood. By finding these metrics, you can identify properties within the RADD Zone (high-appreciating neighborhoods within a greater metro area). More data means more information to make a good decision.
Pro Tip
Houses that have been on the market for too long (six months or longer), properties with a continued price drop, or properties with few offers are all signs of a bad realtor and are ripe for a low-ball offer way below market value.
Negotiation is a crucial aspect of real estate investment and a true art in the real estate game. Mastering negotiations can take your real estate career and portfolio to the next level. Some things to consider in your negotiations:
Ask questions, low-ball, and make them counter your offer. Nothing ties you to anything in negotiations. The biggest advantage you have as a buyer is the ability to walk away. If they don't want your offer, then so be it. There's always another deal.
Take the time to listen to the seller. They will often reveal valuable information that you can use to your advantage. You don't want to expose your hand, either. Let them talk and pay attention.
The first negotiation is for the initial contract terms, where most people believe the negotiations stop. Not true. The second negotiation happens after you do your due diligence on the property and you see what you're actually dealing with. There will be issues, shortcomings, and flat-out untrue aspects about a property (like cash flow or market rent) that you will discover. Before sealing the deal, you must take this information and negotiate the terms further.
Pro Tip
Don't worry about offending people. You won't. It's part of the game. You want to make the seller say no to your first offer, no matter what. If they accept your first offer, you offer too much money.
Once you've acquired a property, you need to decide how you will manage it and how you will exit. You can rehab, flip, rent, or hold onto it for long-term appreciation. Make this decision based on your goals and market conditions.
When rehabbing a property, a few things consistently ring true. It will be more expensive than you will ever think and take longer than you think every time. Always give yourself a cushion when calculating your rehab.
Hire the professionals. Especially if you don't know what you're doing or it's your first time, you do NOT want to go cheap on the contractors or other rehab professionals. Hire people with long track records and histories to help you complete these projects. Once you gain some insight and experience, you can cut back these costs, but not on your first property.
Also, hiring a property management company can be a wise choice once you're ready to rent. It frees up your time and leverages professional expertise. You can avoid many unforeseen headaches by utilizing property management with your potential tenants.
Pro Tips
If you're looking to rent, avoid replacing everything in the house. To cut costs, utilize the original cabinets, flooring, and countertops. You can even buy a property ready to rent to avoid rehab costs.
Looking to sell? Examine the neighborhood and rehab the property to match the neighborhood condition (or go slightly above) so the property can sell more easily.
The journey to your first real estate deal is a learning experience that requires patience, knowledge, and a total commitment to success. Avoid rushing into deals and letting emotions cloud your judgment. Everything takes time.
Treating real estate as a business and relying on data-driven decisions can position you for long-term success. Finding good partners and leveraging the expertise of professionals can make your journey smoother and more rewarding. For anyone just starting out, networking and patience will be your lifeline.
Good luck on your journey to making your first real estate deal!
Disclaimer: The content from the Office of Dutch Mendenhall at RADD Companies does not guarantee outcomes, and it should be noted that past performance does not indicate future results. Please read our full disclosure for comprehensive information. [Read Full Disclosure]