Start Here to Invest in Real Estate
We met with several investors and potential investors this summer who want to buy residential investment real estate and came to us for advice (Our first bit: Don’t buy crappy properties!). We’ve put these tips together for like-minded people starting out fresh or just starting out in the Columbus market—a short guide on where to begin. If you haven’t asked yourself these questions yet, we recommend that you do before you talk to a professional so that your meetings bring you more value.
Determine your goals: This is the most important step in real estate investing, and it’s amazing how many people say “I don’t know” when we ask them to define theirs. Do you want to invest to rehab and flip, or to buy and hold rental property? (Don’t buy crappy properties!) They’re very different goals with different paths to fruition—even two flippers or two buy-and-holders won’t look alike.
If you want to flip, have you run your numbers to make sure you won’t lose money on the deal? Do you have contractor relationships? Do you know, for instance, that if you don’t personally purchase any rehab materials it might help you avoid liability for contractor injury on the job? Are you realistic, and willing to learn from mistakes with the first deal so you’re a better flipper on the next?
If you want to buy and hold, how long do you want to hold the property? When do you want to cash flow on it, and by how much? Does cash-on-cash return matter to you? Are you more concerned with the rent paying down the mortgage over time with tax benefits and asset appreciation for your portfolio? Are you going to live for the long term in the same city as your investment property, or will you move and have to deal with sale or management issues?
Study the market: Market forces matter in investment purchase decisions and they move in waves. As an investor, you must be on top of them. Right now interest rates are good but inventory is tight. Are you reading about it? Are you online looking at properties? Are you driving by any in your spare time? If you’re from out-of-state and looking to invest in Columbus because it’s known for being a holdout market for cash-flowing rentals, are you in contact with someone here on the ground who can look at properties for you? (Don’t buy crappy properties!)
Run your numbers: Whether you plan to buy in cash or finance, it’s always imperative to know first what you want to spend and what you want to make on your investment. Run your numbers based on a consideration of all the pertinent property factors—location, comps, current rental income or rental comps, and include all the expenses you can think of to estimate conservatively. (Don’t buy crappy properties!) Always do that first—on a flip, for example, set a profit-on-sale minimum and stick to it (“It’s okay to make $5000 on this deal because I’m starting out and learning, but moving forward I won’t do it if I can’t make $10,000”). Then worry about how to buy it.
If you’re not part of the segment of investors who can still qualify for investment financing with a 25% down payment at a conventional bank in our post-recession banking climate, have you researched creative financing? New lenders have popped up in the industry since the end of 2008 and there are lots of creative financing options for both flippers and buy-and-holders if you’re willing to spend the time finding it. There are hard money lenders, banks who underwrite on the real estate transaction itself and will accept low-600s credit scores, and seller-financing, to name a few.
Find solid resources, and use them: If you want to invest, talk to your banker, accountant, attorney, insurance representative, realtor, neighbor, baker!, and anyone else you feel comfortable with. You’ll get insights, advice, contacts, testimonials, maybe even tips on off-market deals that will save you a real estate commission (Don’t buy crappy properties!). Real estate investing is a big wide world and people love to talk about it. They also love to peddle $5K seminars on how to be the best at it, so be wary and be smart about the connections you make. Go online and study solid real estate investing websites like BiggerPockets.com. Join a local real estate investment group like the Ohio Real Estate Investors’ Association (Oreia.com) and Central Ohio Real Estate Entrepreneurs (CentralOhioREIA.com), or form one of your own and push it out via LinkedIn or Facebook, or read from real estate investment books and blogs that fit your investing style. You have to build a network to build an investment portfolio.
We can help, too. We work with investors to find, purchase, light-rehab, sell, and manage investment properties. And you can guess our best advice.