Exactly what are the steps to becoming a real estate investor?
Many dream of becoming a real estate investor who can get to the point of totally depending on their investment properties for income and not their regular job.
There are several steps to becoming a real estate investor that you need to take or at least keep in mind.
Probably the most obvious is called the BRR Method, buy, rehab and then rent (you can also add refinance and repeat to this acronym). This is the strategy of buying properties needing work and fixing them up to increase their value.
It seems straightforward but there is a danger of getting cold feet. Over-analysis leads to paralysis, investors can often spend too much time researching, and not enough time taking action. It makes no sense to learn all the steps to becoming a real estate investor and not take action.
Do your research of course, but don’t procrastinate. The sooner you get your feet wet with your first property, the sooner you’ll reach your financial goals.
Here are 7 steps you can follow to invest in your first rental property. The first step to becoming a successful real estate investor!
Real Estate Investor Step 1 – Finances
One of the first things to do is to evaluate your financial status. You need to be realistic about your finances. Know what your monthly spending is and where the money goes.
You also need to take steps to ensure that your credit score is high enough to be approved for a bank loan if you will need a mortgage.
Determine the sum of money you can spend on your income property.
Itemize all costs before setting out on your investment project.
This includes renovations and maintenance.
In the early going, you will have to make all the payments out of your own pocket until your property starts to create rental income.
So, know your financial capabilities before making your first property investment to avoid cash flow problems.
Real Estate Investor Step 2 – Educate Yourself
Another one of the steps to becoming a real estate investor is all about your education. Once you have your financial ducks in a row, you should start learning all you can about the current trends in the real estate market.
Read, listen to podcasts, join a forum and ask other property investors, and in general just study the housing market. Learn about the best real estate investment strategies.
Choose the geographical area in which you want to purchase a property and then look at houses in that area until you find one that is under-priced in comparison to others in that area, ideally it’s a property that gives you an opportunity to add value by simply fixing the place up a bit and making it much more presentable and attractive.
It’s a good idea to arrange for an inspection. An inspection will certainly give you more information as to the extent of the renovation you might need to complete on your property.
Real Estate Investor Step 3. Take Action
After you have completed your research, identify exactly what type of property you are looking to invest in.
A friend of mine likes to say, “You sometimes have to stick your neck out to win by a nose.” It’s true, you can analyze all you want but eventually, you must take the plunge!
Once you have found the right property in the right neighborhood that has the right potential, purchase the house with the minimum cash down payment permissible.
Once you take possession you can get to work to renovate, depending on your skills to maximize your ROI you can do the work yourself or get advice from others who have experience in home renovations and learn the tricks of the trade.
Real Estate Investor Step 4. Maximize Your Investment
Once your renovations are complete you can sell the house for a tidy profit and then put those profits into your next BRRR project.
Or you can rent out the house for a monthly payment greater than your monthly mortgage payments, giving you extra cash flow.
Also, you can rent out the property and then approach the bank in order to refinance, based on the new earning power of the property when rented out to a tenant.
With a renter paying a set amount each month, you should get a higher appraisal of the property’s value.
The bank will lend you money, or you can take out a new mortgage on your investment, based on this appraisal.
Real Estate Investor Step 5. Repeat the Strategy
Once you have that first successful investment property then repeat the process and in this way, you can steadily grow your property investment portfolio.
Real Estate Investor Step 6. Move Up To Larger Properties
As you grow your portfolio, increase your cash flow, wealth and experience, you can make the jump to duplexes, triplexes, fourplexes and multifamily properties or apartment buildings.
Real Estate Investor Step 7. Get a Good Property Manager
Ultimately, as the work becomes too much for you to handle alone and as you want to take more of a back seat, it will be important to find a good property management team.
They take care of all the day to day work, dealing with tenants and maintaining the property.
Try to source a property manager that you can work well with for the long term and one that you can trust.
A Word about Taxes
It’s important to be aware that if you own a rental property that you don’t also live in then this property is subject to different taxation laws than your primary residence.
Make it a priority to educate yourself on this subject so that you are able to classify your property correctly on your tax return.
Summary Steps to Becoming a Real Estate Investor
Once you have studied all these steps to becoming a real estate investor, then you are ready to start your life as a successful property investor, you will find it exciting and rewarding to start putting all the theory into practice in the real world.
If you are nervous then why not start off modestly with your early investments and carefully weigh up any risks, this way you will be certain to have a successful investment career and you will be well on your way to reaching financial freedom.