Updated March 7, 2022
Updated March 7, 2022
Are you ready to learn know how to start investing in real estate? It’s much easier when you have help from proven industry experts. The quickest and best way to learn how to do something is to ask someone with an in-depth understanding.
Let’s take a look at four tips from industry experts that will help new investors learn smart strategies for investing in real estate, find the best properties, and make money.
Tip #1: Build Your Bankroll
Real estate investing is easier after you have money set aside to make your initial investment. Save money every week, watch your bankroll grow, and you’ll build a solid bankroll to put a down payment in on your first physical property in your target market.
Many successful real estate investors know that “all-cash” offers are much more likely to be accepted by sellers, especially if competing bids are backed by mortgages. However, not every investor starts with a cash-paid investment. Even if you only pay 20% of the property’s value upfront with a down payment, sellers will prefer your offer as most property buyers don’t have enough cash on-hand to cover more than 5% or 10% of the down payment.
Start learning about the real estate industry as you bide time saving money toward your first investment and work with a lender to get preapproved for an investment mortgage. Then, when you find an excellent property to start your real estate portfolio, you’ll have a financial and educational launching pad to success.
Educating yourself about the real estate industry centers on identifying trends, pinpointing helpful industry technological innovations, and building relationships with industry professionals. Expand your network, tap into all available information resources, and you will be better prepared to make financially savvy offers on properties as they hit the market.
In addition, this work will help you further understand how to get into real estate investing and build long-term success! You might even be able to put in an offer on a property before it hits the open market after establishing the right relationships or connecting with the right technology during this initial preparatory stage.
Tip #2: Choose a Market and An Investment Strategy
While it makes sense to start investing close to home, your local market might not be the optimal place to start in the context of profitable real estate opportunities ripe for flipping or buy-and-hold investments. On the other hand, investment properties in surrounding communities or several states away might be ideal based on the unique dynamics of local economies. Conduct plenty of market research with the assistance of your newly-formed real estate connections, and you will be able to make a well-educated decision as to which markets are best for real estate investments.
Protect Your Business Early!
A successful investing strategy also centers on the entity you form to purchase properties. Whether your goal is to fix and flip properties, turn them into vacation homes, or hold them in anticipation of appreciation, investors must consider the merits of forming an LLC vs. sole proprietorship.
The best business entity for your real estate ventures hinges on your preferences and goals. A sole proprietorship is a straightforward business structure for real estate investing. Though sole proprietorships are not legal entities, meaning you as the owner will be liable for the debts accrued, it has its merits. Sole proprietorships created in your name or what is referred to as a “trading as” name set the stage for profitable property rehabs without the need to form a separate legal entity.
The downside to operating as a sole proprietorship is that some real estate lenders don’t like the idea of lending to an individual with such a business due to legal restrictions. In addition, if a loan were extended to an individual’s sole proprietorship, it would be considered a consumer loan, ultimately making it less attractive from a lender's perspective. Above all, the downside to creating a sole proprietorship in the context of real estate investing is the inherent legal liability. For example, if there is an accident on the property, you will be on the hook for lawsuits and the financial losses resulting from those legal actions.
Establish an LLC for investments properties, and you’ll have comparably more legal protection. This protection is essential for safeguarding your finances in the event of an accident on the property. The legal liability for lawsuits and financial losses stemming from such incidents rests on the LLC instead of you, the real estate investor.
When setting up an LLC, a bonus is that it can be structured as a pass-through entity to help your rental property taxes. In other words, there won’t be taxes applied to the investment property business. Instead, the income and tax deductions move through the LLC’s partners.
Tip #3: Analyze Real Estate Investing Deals
Now that you have a bankroll built-up, industry connections made, and the right type of business incorporation for residential real estate investing established, it’s time to start looking for the right deals.
Take a look at the available properties on the market to understand the types of properties available, how much they cost, and estimated returns. Then, project how much it might cost and how much you might make from flipping old properties, as well as how much you might make from rentals in certain areas. Once you accurately estimate monthly expenses, you can move forward with offers.
Be sure to factor in all costs when preparing offers, including the expenses that come with property management for buy-and-hold rentals. Instead of attempting to manage the property on your own, leaning on a property management company to do the work for you can help you can narrow your focus on finding additional properties to build your portfolio.
Continue building your support team, including a real estate agent, an insurance agent, and a mortgage lender, so that you can move forward with offers promptly with complete confidence. The right real estate investment software can also help you find properties that fit your criteria and learn how to make deals just like seasoned investors make!
Tip #4: Make Offers and Close Rental Property Deals
Now that you’ve done the preparatory work, it’s time to review the real estate investment you have your eye on, then consult with your real estate agent to understand the true market value based on nearby comparable properties (or comps) and start making offers. Don’t forget to budget $500 to $1,000 or even more for a comprehensive property inspection. Finally, if your offer is accepted and the property passes inspection, it’s time to transition to the close.
However, if the property fails inspection, there will be some negotiating to do. Your agent and real estate attorney can help you determine the best strategy for requesting repairs to the property so it can pass inspection. Alternatively, it might be better to agree to a reduced purchase price that empowers you to make the necessary repairs with the money freed up after decreasing the purchase price following the failed inspection.
Get An Advantage When Searching for the Best Real Estate Investments!
If you are curious about how to start investing in real estate and find the best properties in markets throughout the country, look no further. The Privy team has access to the best deals and the best markets, and we deliver those insights directly to your inbox every day. Whether you’re a fix-and-flip investor, wholesaler, or an aspiring rental property investor looking to get started as a real estate investor, the Privy Advantage can help you find the best properties to meet your goals!