Real estate investing can seem complicated, but getting started doesn't have to be. At The Hard Money Co., we've put together a 10-Step checklist that can jumpstart your investing career. Though this checklist may not get you entirely across the finish line, we can guarantee that if you check every box on this list, you'll be ready to get started.
1.) Answer the question, "Do you want to invest in real estate, or do you just want to make money?"
It's easy to see the cash flows and returns that real estate investing can generate and decide you want in. But real estate is its own animal. You have to be a consummate manager to navigate a fix and flip and if you end up with renters, you will spend an inordinate amount of time dealing with landlord obligations. Plenty of people can ask this question and honestly answer, "both", but if you're not willing to do the work that real estate requires, you may be better off looking for alternative investment strategies.
2.) Reduce your personal short-term debt
Most Americans live with a relatively high level of personal debt. This can come in the form of car payments, credit cards, or student loan payments. Having these on your books while you're trying to invest in real estate can really eat into your monthly cash flows. While it's possible to make all of these things work when times are good, what happens when a property is unexpectedly vacant for an extended period of time? This can expose both your investment and your existing debt obligations to serious risk. Before you jump into real estate, do everything you can to pay down your existing high-interest debt. We know this isn't immediately feasible for everyone, but it will improve your likelihood of success in real estate investing.
3.) Save up for your down payment
No matter what you're investing strategy, you're going to need some level of capital to get started. Even with private lenders and hard money, you will need to make a down payment to acquire the asset. This is done for a number of reasons, but the most important is that it shows lenders that you are personally invested in the success of the project. Having skin in the game can improve your loan terms, improve your monthly cash flows, and help you realize more equity on the disposition of your property. More is always better but aim to have 20% of your purchase price ready to put down at the start of your project.
4.) Keep Saving
The down payment isn't the only thing that requires some cash on hand. The acquisition process comes with closing costs, broker fees, insurance premiums, and more than all need to be paid. Additionally, the property will inevitably need some unexpected repair that may exceed your monthly cash flow. Having savings will alleviate the stress points in your investment strategy. It's not enough that you make money in some months, you need to ensure that your investment can survive in perpetuity, and it takes cash to do so.
5.) Look for opportunities inside and outside of your community
We've always said that real estate is local. You are best positioned for investing success if you work in the areas with which you are most familiar. Understanding both the markets and the community can be a huge advantage when trying to renovate, market, or sell your property. It can help you find contractors and will make it easier to communicate the benefits of your offering. It also helps to be nearby when your tenant is facing a late-night emergency.
But the counter-argument to this is that our communities are inherently small. If we limit our investment scope to only what is nearby, we may be forgoing great opportunities in emerging areas around the country. A good investment is not location-specific, so consider long-distance investing in growing markets. This is especially true for investors located in dense, urban areas where acquiring a single- or multi-family home might not be possible. Listing sites have made it easier than ever to find these opportunities outside of your immediate area. Consider how exploring these options may open the door for opportunities that you haven't been exposed to before.
6.) Consider your financing options.
There are many ways to finance the acquisition of a property. You can use your own cash, friends & family, traditional lenders, or hard money. They all have their merits depending on your particular circumstances. Are you a relatively experienced investor with a big network and deep pockets? You might want to consider financing the whole thing yourself. Maybe you don't necessarily have the cash, but your credit is impeccable and the deal isn't time-sensitive. In that case, traditional financing may be your best bet. Hard money is a great option for people with a clear investment strategy and the urgency to move quickly. The Hard Money Co. can close in as little as 10 days and will provide financing for your repairs. Filling out an application is quick and easy and you will hear back from us to discuss whether hard money is the best option for you.
7.) Build your local team
Nobody does this on their own. Even the most independent real estate investors have people they rely on to execute their projects. In fact, it's essential to scale your business and create lasting wealth. Whether it be an agent to buy/sell properties, a contractor to complete all of your repairs or a financing partner to back your investment strategy. Sometimes, all you need is a mentor who will answer any questions you might have. Having people in your corner will make you a more effective, profitable investor and it costs you nothing to start building those relationships today. In fact, consider us a part of your growing team.
8.) Practice your market analysis
If the first time you perform a property or market analysis is when you're trying to buy, you're going to do a poor job. You'll have trouble analyzing the property because your judgment will be clouded by the opportunity and you'll lack any context from other analyses. This is a skill that you can practice. Pick an arbitrary neighborhood in a random US city and see if you can find a worthwhile investment property. See what the population growth is, or what the median household income is. What's the ratio of renters to owner-occupied homes? Which way are rents trending? Grab as much information as you can and practice drawing a conclusion on the property. When it comes time to do the same analysis for a real investment, you will be able to clearly see any pitfalls and make a rational decision before moving forward.
9.) Learn how to perform a financial analysis
At the end of the day, real estate investing is about the money. In order to be successful long-term, you have to know the math inside and out. The good news is that there are readily available templates that can get you started. Your initial analysis should include the basics such as gross property income, debt expenses, and operating expenses. As you get more complex, you can start including vacancy costs, management fees, and more.
10.) Learn something new every day
There are, quite literally, a million resources to help you along your real estate investing journey. While some may be better than others, it's essential to consume as much as you can to develop a completely up-to-date perspective on the industry. Whether it be books, podcasts, workshops, or YouTube videos, there is always something more to be learned. Growth is an important part of turning real estate into a career. New strategies emerge every day that render old models incomplete. You can't afford to compete against others if you don't have the most current information at your disposal.
Its time to invest
If you can honestly check the boxes on each of these 10 items, you are more than ready to dive in. Take the leap and discover the power of investing in the best asset class in the world. If you need help along the way, The Hard Money Co. is in your corner and will do everything we can to help you build lasting wealth through real estate investing.