Real Estate… Answered

Your first real estate investment is the hardest. There are so many available techniques and options that it’s easy to get overwhelmed and stop. I mean, consider the following (incomplete) list. Bank owned properties, short sales, motivated sellers, rental properties, lease options, VA foreclosures, apartment buildings, mobile home parks…

It’s theoretically possible for a beginning real estate investor to make money from each of them, but which one? You can’t invest in everything. If you’re like most people, you also want to invest in the best deal. You can’t afford to lose money or waste time on a bad real estate investment. You need to make money. Now.

Here are three variables to consider to ensure you make the right real estate investment:

Your Target Market: Understanding the Economics

Nothing will influence your investment decisions more than your target market. You invest very differently, in say, Birmingham, Alabama than San Diego, California. Where you can depend on some appreciation in San Diego, you will probably need some upfront equity in Birmingham. You’ll also need to know smaller, individual markets. For example, which specific districts or even neighborhoods are improving? Where can you find the best deals?

There are two good ways to learn your target market:

1) Get to Know Other Real Estate Investors

Attend all of your Real Estate Investment Association meetings. Hang around long enough and you’ll hear successful investors talking about their latest victory or market. You might also partner with them or offer to do some work for free, in exchange for them teaching you about the market.

2) Watch All of the Listings and Sales

While time-consuming, there’s no better way to learn your target market than watching every listing and sale. You can find sales information on the MLS. Some counties also publicize each sale in a local newspaper. Watch your target market closely and you’ll start to notice trends.

Your Technique: Understanding Your Specialty

Masters of real estate investing can approach a deal from a dozen different angles, but when you are just starting out, you might only know one technique. Are you specializing in foreclosures, pre-foreclosures, rehabs, or quick flips? You should stick with what you know. Become an expert in that technique and slowly expand into other types of real estate investments.

Also understand that certain properties work better with each technique. For example, small foreclosures and rehabs can work well for someone flipping houses. Similarly, it’s difficult to flip a $20 million apartment building in only 30 days. You need to figure out which types of properties work well with your strategy of choice.

Your Goals: Understanding Where You’re Going

The right real estate investment is also defined by your goals. If you’re looking for a little side income, $50,000 fixer uppers or flipping houses may serve you well. On the other hand, if your goal is to become a billionaire, you probably need to start larger. You might try to get involved with some real estate developments or multimillionaire investors.

You also need to establish a plan that takes you from where you are now to where you want to go. For example, if you want to have a passive income of $5,000 per month in the next 10 years, you might plan on buying 10 properties per year that cash flow $250 per month each. Or, more realistically, you might buy only five your first year and 20 your last year. Whichever the case, figure out your plan and stick to it.