So, You Want to be a Real Estate Investor?

How much time are you going to be able to devote to this real estate endeavor?

If you currently have a full time job, I would advise you to keep it—at least until your real estate business generates enough money to replace your current income. This is especially important in today’s constricted job market.

If you have a job with a good income, you should be able to qualify for a mortgage. Your job should provide you with funds to contribute to your retirement account, and perhaps to pool with another investor with whom you might like to partner. Many self-employed full-time investors are no longer able to get a mortgage on their stated income, or because they have already reached the limit on the number of properties they own.

Many of these investors use hard money or private funds, when they would be just as willing to take on a partner who can get a mortgage at today’s low interest rates. This option would expand the possibilities for exit strategies, perhaps turning a flip into a cash-flowing long-term hold. Network with them, if you are still working and still learning about real estate investment.

Did you know that you can self-direct your Investment Retirement Account (IRA) to invest in real estate, and not just stocks and bonds? Many people are unaware that they can do this. There are many fine IRA custodians like Equity Trust and facilitators like Bellevue-based Guidant Financial that can help you set up your account to do just that.

While a full-time employee may not have much time to devote to investing, he will likely have funds to invest. And that will provide incentive to partner with a more senior investor who is looking for funds or an equity partner. If you are simply looking for a passive investment with greater returns than you might earn on the rest of your investment portfolio, then lend money to an investor you trust with a consistent track record. Or partner with an experienced investor from whom you wish to learn.

In the process of lending money, you will receive paperwork that you may find yourself using later when you are looking for private lenders yourself! Look over their prospectus on investment, and ask questions about how they intend to generate profit. You will learn much about putting together a professional presentation, about buying criteria, marketing, and about potential exit strategies. One of the biggest mistakes new investors make is quitting their job too soon.

If you are in a real estate-related industry, you may never decide to quit your job, as this may be a good source for leads, referrals, commissions, financing or other resources.

However, if you are unemployed, retired or self-employed, you have the opportunity to dive into investing full time. Real estate investing is MORE than a full-time job, despite what some national gurus might have you believe. I guarantee you will not be sitting on a sunny beach sipping margaritas while your business works without you—at least not in your early years.

Investing is a discipline that requires hard work, education, consistency, systems, and persistence. Learn all you can, and surround yourself with people who are successful, positive, and believe in you. There will be plenty of obstacles, rejection and naysayers along the way. Make strong connections among your contacts at your local real estate investment association, because they will remind you that IT CAN BE DONE, and our members are out there doing it. And you can too! If you are willing to do your homework, and take action!

The Big Why of Real Estate Investing

First and foremost, why did you decide to invest in real estate?
The answer to this question, the big “why”, will help you sort out your level of motivation and commitment to investment. There are no right or wrong answers here, only insight that will help you narrow down the specific areas in which you may wish to concentrate your time, money and efforts.
Here are some questions to get you started:
Are you simply curious and hoping to learn more about real estate as an investment vehicle? Are you planning to buy your first house? Or have you bought properties before and want to know more? Do you have friends or associates that have done well investing in real estate, and you’d like to join them?
What are your assumptions about real estate investing? Do you believe it is the path-or at least one path- to wealth? Do you have the impression that this path will be easier or quicker for you to achieve your goals? Is there some burning desire or passion moving you in this direction?
What are your financial goals around investing—in real estate, or in any other investments? Is real estate a primary investment vehicle, or part of a larger investment portfolio?
What would you hope to do with any financial rewards from real estate investing? Pay for college? Your children’s education? Retirement? Supplement your current income? Quit your job?
How much money –specifically-- would you need from your real estate investment in order to accomplish your goals? The more specific you can be in answering this question, the better you will be able to chart a path to help achieve it.
Write down your answers to these questions and thoughts about real estate investment as if it were a personal mission statement. An example might be: My real estate investment in rental properties will provide at least $75,000 annually in passive income, on which I could retire in ten years.
Note that this statement assumes a positive outcome we hope to achieve at a specific time in the future, with a specific financial target. It helps the author to visualize a future they desire in concrete terms. Whether it is realistic or not will depend on the specific plans the investor puts into place to achieve it. And of course, like any plan, the specific steps to get there will evolve as the results of previous actions provide outcomes that either meet, exceed or fall short of targeted goals.
Savvy investors are clear about their goals and have plans to accomplish them. They can articulate very clearly what their investment strategy is and why. As a novice investor, you may not have all the answers yet, but this is where you will start: with your Big Why. You can always change or modify it in the future. Your specific strategies, e.g. your specific type of investment, may change as you learn more, but your reasons for investing in the first place probably won’t. They are the motivation to keep you moving toward your investment goals.

"I work full-time, but want to invest in real estate"

Think you don't have enough time, knowledge or resources to invest in real estate? Get started as a credit partner with a seasoned investor, using your good credit and documented income to co-borrow on a mortgage. Partnering with a full-time investor allows you to learn while you earn a stable income, until (or if!) you decide to become a full-time investor. Credit partners often pay NO MONEY out-of-pocket; their investor partner pays all fees and closing costs. The partners then split monthly income and proceeds from the sale of the property at some point in the future.

How does this work? How can I afford another mortgage?
Many people think that if they already have a mortgage, they could not possibly afford to take out another one. This may be true--if they are buying a second home or vacation property that generates no income. However, if they are buying an income property, lenders will consider the rental income in qualifying the borrower for a new loan.

If you already own property, you may be able to free up some cash for investment by taking out a second mortgage or a home equity line of credit (HELOC). A second mortgage at a fixed rate may allow you to invest in a long-term loan as a credit partner; while a HELOC may allow you to do some short-term private lending. Either option gives you experience working on real estate investments with a more seasoned professional.

How can I learn more?
Send for my free report on "Equity Partnerships in Real Estate Investing for the Full-Time Employee" by emailing HomeLandInvestment@gmail.com

Purchase Price is Firm

When the Purchase Price Won’t Budge
Don’t abandon ship. Purchase price is just one variable in the entire equation. If the purchase price is non-negotiable, consider what other things might be up for discussion.
--Seller financing or adjusting the interest rate on seller financing
--Quarterly rather than monthly payments
--Amortizing over an extended period, perhaps even fifty years
--Exchange a down payment in return for improvements
--Loan assumption
--Extend the closing date
--Allow improvements before the closing date
--Reduce or eliminate the down payment
--Seller to pay closing or improvement costs
Many items on this list could translate to substantial savings and make the issue of purchase price less daunting. It is critical not to jettison a potential clear sail (sale?) just because one item doesn’t quite float as you had hoped.

Ways to Enhance Equity

Ways to Enhance Equity
While perhaps you cannot create something out of nothing, there are many strategies to create something better out of very little. For the creative investor, there are myriad opportunities to improve the value of your investment. Think out of the box in converting usable buildings to livable space. Could a horse stable become a funky college boarding house? Can a mobile home park or parking lot be converted to apartments? Sometimes something as simple as restructuring a floor plan slightly or adding a small room to increase living area can add value. Finishing basements or attics might be just the perfect bonus room a renter or buyer is seeking. Perhaps subdividing a large property, or adding eye catching landscaping can be the extra oomph a potential money maker needs. Enclosures like porches or carports or decks can be added, or sometimes just spruced up with decorative railing or screening.
Bedroom or bathroom additions can be pricey, but perhaps there are less expensive alternatives, such as converting an office to a bedroom or extra mud/laundry area to a small half bath. Adding a separate entrance to a bedroom may make a potential rental situation more appealing. Of course, don’t ignore the obvious income generators- increase rents when applicable, or decrease expenses when possible.
Investing can be enormously creative, and the more you think in novel ways, the more you will be able to find remarkable deals wherever you look. Approach every property with the intention to find the potential, and you may find a hidden treasure.

Don't Quit your Day Job!

Keep your day job until you are consistently earning a comparable amount from investing for at least 12 months.This tip is particularly difficult to abide by when you hate your job, or you have a tremendous deal in the works, and you see a future filled with opportunity. It is unlikely that a new investor will equal the salary of a good job in the first 2 years of investing. It is frightfully common for an excited new investor to quit a job before a loan has even been completely processed. First of all, if you are not employed, it is difficult to secure loans. In general, you will need proof of 2 years of investing from a CPA to be able to get a loan, unless you have another job that insures you will be able to repay that loan. The loans that might be available to you without those prerequisites will likely be very high interest loans, reducing the potential for an income generating deal. Many investors make the mistake of calling the money made on a deal "profit" when indeed a large bulk of that money is debt, and will have to be repaid. Then the certainty of vacancies, repairs, and slow periods will quickly become death knells to the investor sitting on the margin of success. Your investing income must exceed your salary consistently for 12 months before you should consider losing the certainty of your day job's income.Some people quit their job insisting they need to close more deals, and want their success with 10 houses to be multiplied tenfold. It is important to consider that in investing in real estate, more is not necessarily better, particularly if you are a landlord. Being a landlord is fraught with difficulties and headaches. Collecting rent, repairs, unexpected vacancies, and difficult tenants may be manageable with 10 properties, but impossible with 100. Investors with large numbers of properties have to hire full time leasing agents, eating away at both profit and control. It is very common to find the owner of 50 properties making more money than the owner of a hundred because his overhead is so much less. Additionally, the more property you own, the more overhead, repair cost, vacancy rental loss, etc.- and thus, the higher reserve you must have. Cash flow is critical, particularly to the new investor. It is always preferable to have less property with a higher cash flow than more property with less cash flow.Remember, becoming a successful investor requires time, hard work, and patience. Like anything worthwhile, instant overwhelming success is not the norm. Be realistic in your expectations, and hang on to your job while building a secure reputation, knowledge base, and success rate. Ultimately, you will insure a longer more productive investing career.