After I had been in the real estate business for a few years, I came across an article that said exactly that. Get a good plan. Following that advice helped me considerably.
Looking back now, several years later, I think I can improve on that advice a bit.
First of all, don’t start without a good plan and second, once you have a good plan, find a better one.
Living from real estate is exciting. It is a very interesting journey of discovery. However, he doesn’t start any journey without a map of some kind and then gets the best map he can get.
So what should you include in your plan?
an executive summary
A description of your business
Your short and long term goals
Your property search strategy
A competitive analysis
How do you plan to develop your properties?
Operation plans and daily management
Details about your finances, as well as projections.
If possible, there is one last ingredient to add to your plan and that is to find other investors. While there are some parts of his method that some people love to be mysterious about, I have found that most other investors are fantastic sources of information. Of course they’re going to brag about the big deals, but it always amazes me how ready they are to count their rookie mistakes.
Now you won’t find them listed in the yellow pages, but your local real estate agent might be helpful. I myself do not participate in joint ventures, although I know people who have found this to be a good way to make rapid progress. The simple act of sharing information is a very profitable business for me.
Here’s something else many of us have found to be successful. The first project is to buy something cheap and change it. Doing this will give you the experience and establish you as a real estate investor. Then, before you step out of your comfort zone, do it again. Act like a newbie again, review what you could have done better the first time around, and buy another cheap property and trade it in. The old philosophy of rinse and repeat.
In your first few days, you will start to see some money coming in. You will hear stories or read about other areas of real estate investing that are more profitable. You should resist the temptation to diversify until you are fully established with your original plan. Once you feel confident enough to diversify, maintain a healthy balance between net income and debt levels. Nobody likes surprises, at least not those unforeseen events that cost you money and can derail your plans.
A successful real estate investor knows that rental income has to cover his own expenses. A widespread belief is that the rent will be dictated by the area. In other words, the amount produced for similar goods will be the maximum that can be earned. Well, I’m here to tell you that this is not necessarily the case.
That will be the case if you are acting as an ordinary landlord with ordinary property. Maybe you can dare to be different. Maybe you can dare to be better. How about attracting the best tenants to the best properties? (For just that little more money.) What about contract cleaners or contract gardeners? The best tenants can wait for you and there will be a little more money for you.
If you opt for multi-unit properties, as part of your portfolio, you’ll want to include vending machines. Don’t forget that washers and dryers can be a good additional source of income. Get a little inspired and increase your productivity.
When you have a few properties, you can tackle some of the repairs and maintenance yourself, especially if you have some DIY skills.
However, once you have a larger portfolio, you will need to use some contractors. This is where you can leave yourself open to some unplanned spending. Most dealers will want to supply and charge you for materials and labor.
Now he is going to charge you a little more than the retail price of the materials. If he is a merchant of any category, he will get a discount or wholesale price for those materials. Effectively, they are charging their costs twice. So ask him to do the job only with labor cost and control the time he is on the job. You can open an account yourself with the wholesalers.
After a few orders you can negotiate a nice discount and they will almost always deliver it for free. In this way, you can use your savings to keep all your properties in the best conditions and earn the best price.
Keeping up with maintenance and being quick with repairs is more economical in the long run. As with many things in life, keeping up is easier than catching up.
Probably the biggest result of this is that your tenants stay longer. It is imperative that you take care of your tenants, because if you take care of them, they will take care of you. A frequent turnover of tenants is expensive. When they move, some redecoration or repair is almost always required. This often eats up the entire security deposit and even the best tenants can suddenly leave owing money or not paying a bill.
There are probably many different reasons or circumstances that persuade people to become renters rather than homeowners. Whatever they are, I’m glad they exist and keep supplying tenants in need.
My philosophy with regard to most properties, but especially single family homes, and which I recommend to my students, is to provide the circumstances in which the tenant can act as if they were an owner-occupier.
If you are a model tenant, the type I want to keep, I will provide you with the landscape contractor if you select and pay for the planting of your choice.
Similarly, I will provide the decorator if you select and pay for the decoration materials.
This way you can have the circumstances of your choice. Neighbors, friends, and family would have no reason to think of him as anything other than an owner-occupier. He will want to maintain his relationship with me for as long as possible.
And that my friends is as it should be.