Investing Basics
It all begins with mindset. Real estate is not a get rich quick scheme. It is possible to make money quickly but consistent wealth is created over time in a systematic way. Consistency is produced by establishing your goals, setting criteria and utilizing your network to create “deals” that fit your overall financial portfolio.
There are Four Investment Profiles:
1. Investor: Loves opportunity and buys the right thing – minimum risk/maximum return
2. Collector: Loves ownership and buys something – low risk/low return
3. Speculator: Loves the action and buys anything – high risk/high return
4. Observer: Loves ideas and buys nothing – no risk/no return
Which do you intend to be?
What Are Your Goals?
Many people begin their real estate investing career without clearly defined goals. When outlining your goals it is important to consider the following questions*:
• How much money do you intend to make through real estate?
• How does real estate fit into your overall financial investment portfolio?
• How long do you plan to hold your investments?
• How involved do you want to be in your investments?
• What real estate investment strategy do you think will help you achieve your goals?
For a complete “Investment Assessment” please contact me 203-512-9331 to schedule a private consultation.
With those questions as your starting point, the most easily definable goal is typically related to the amount of money you want to make per month. I suggest you use the amount of money it would take for you to live comfortably without a traditional job.
Using a “buy and hold” strategy here is a simple calculation to illustrate potential numbers: Use your desired amount of cash flow per month, divide that amount by the average rent in the area in which you plan to invest and you will discover the # of units you need to own (outright) to reach your goals.
Example: If $10,000 is my desired gross income per month and the average rent in my area is $1,000 the following equation would apply:
$10,000 / 1,000 = 10 units.
In this example it only takes 10 units owned outright to gross $10,000 per month in passive income. Obviously other strategies will require different calculations and yet the important concept here is chunking down your goals to help you create a plan to achieve them. How much would it take for you?
Establish Your Net Worth
Establishing your new worth allows you to “live in a world of intentional investments, not just accidental assets.”2
Once you know how much it will take you need to determine where you are today. In the simplest terms your net worth is what you own minus what you owe. (See the attached Personal Balance Worksheet3 to get started.) Then commit to reviewing your net worth monthly. Put it in your schedule. With each review ask yourself, how can I make this grow through real estate?
Understand the Benefits of Real estate
There are two ways to get money: you can earn money and you can receive it. You can earn money from your work and you can receive money from your assets”3
In real estate cash flow and equity build up are the two ways to make money from your assets. Below are strategies for each. Deciding your goals and sticking to a strategy will get you to where you want to go faster.
Build your Network
Once you have decided a strategy that fits your financial model, it’s time to begin to review and build your network. Start by asking “Who”? Ask yourself “Who can help me?” Consider the following:
- Owners (sellers)
- For Sale By Owners (FSBO’s), sellers listed on the Multiple Listing Service (MLS), builders/ developers, absentee owners and landlords to name a few.
- Intermediaries (gatekeepers)
- Attorneys, realtors, loan officers, accountants, etc.
- Lead Network (referrers)
- Friends, family, colleagues, fellow organization members, fellow church members and the like.
The question of “who” you can contact is endless. (See the Network Building Worksheet for more examples.) Don’t get stuck in limiting beliefs like “oh, they won’t know anyone” or “they won’t take me seriously because I’m new at this.” Those thoughts are yours alone. Real estate investing is a numbers game. The more people you contact the more likely will increase your chances of meeting key people who can help you achiever you goals.
Create a Model to Generate Leads
There are three basic ways to prospect for real estate opportunities:
1. Telephone: Call on newspaper ads, your database, craigslist, For Sale By Owner websites
2. Face to face: Door knocking, seminars/investment clubs, community events, courthouse proceedings
3. Research: Public postings (HUD, Foreclosure, etc), Multiple Listing Service, business publications, paid investor prospect leads
Many beginner investors believe success comes from large marketing ventures -mailings, signs, advertisements, etc.- money can be made using these techniques and yet marketing is expensive and needs to be consistent. If you are not able to sustain a marketing campaign with a minimum of two touches per month for a minimum of 18 months don’t start one in today’s market.
A more economical approach is to use the telephone to create warm leads and then follow-up with consistent print/email marketing. Know your budget and work your marketing to generate leads accordingly. The key is consistency but to stay in the game you need to make sure you don’t spend more than you make.
Acquire Properties
Once you build the network to generate leads you need to be able to separate the subjects from the suspects which requires clearly defined criteria. Focus on one investment strategy at a time, often investors attempt to utilize different strategies simultaneously. Should you decide to go that route (it is NOT advised) it is imperative you create a separate Criteria Worksheet for each investment strategy. (See the Investor’s Criteria Worksheet to help with this process.)
In today’s market you should consider 30 properties, with clear criteria narrow down the field to look at 15 properties, make offers on 5 to buy 1.
Beginner investors often become impatient and make offers on properties that don’t match their criteria. These properties quickly become a financial and emotional burden. Be clear. Know your numbers to minimize the risk and maximize the return.
Take your investing to the next level by attending the REal Wealth Workshop and/or schedule your personal Investor Assessment (203) 513-9331.
1-4The Millionaire Real Estate Investor by Gary Keller
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