Becoming a real estate investor can seem like a daunting task. There’s finding an investment, managing it, and the dozens of smaller steps that come in-between. In order to succeed, you need to perform your due diligence and learn the industry. This guide is a great starting off point to give new investors, like yourself, a way to achieve real estate investing success and evaporate any fears you might be feeling.
Benefits of Real Estate Investing
It’s time to diversify away from the stock market and its chronic volatility… and while you’re at it, disregard all the “get-rich-quick” schemes that seem to constantly present themselves in the media. Instead, focus on a proven method of generating income and building wealth: Single Family Rentals (SFRs). When you invest in SFRs, here’s what you get:
Avoiding Common Pitfalls
Avoiding real estate’s many pitfalls is key. Otherwise, you’ll lose time, money, and patience in the process — and that type of exasperation can be a lot to overcome. Here are some examples of how first-time real estate investors often take the wrong course of action:
Failing to consider the full range of costs. Typical expenses include vacancies and repairs, as well as HOA, taxes, and insurance. If you don’t account for all the costs, then your projected returns will be much lower than you anticipated.
Chasing the highest yield. The highest-yield properties typically come with the highest risk, like more repairs, tenant turnover, and vacancy. Know the differences in these types of properties before you invest, so you can best plan for these costs ahead of time.
Limiting yourself to only investing in your surrounding area. Areas outside your current location may provide higher returns and lower initial investments. It’s important to look across the nation for the best real estate investment opportunity.
Stages of Real Estate Investing
Stage 1: The Identification Process
Where you invest often dictates the amount of returns you receive. For this reason, you don’t want to invest “just anywhere.” You need a strategic plan to carefully determine the best possible location(s) that match your goals. Our top-down approach narrows your selection to one that is promising, here’s how it works:
Stage 2: The Acquisition Process
Now that you’ve found a cash flow-producing property, you need to acquire it— which brings us into the second phase of real estate investing, the Acquisition stage. Here are its steps:
Decide on Your Funding. Here are the most common funding options for purchasing an investment home:
|Cash||You pay the full amount of the investment upfront, including expenses||Better Negotiating: Carries Less Risk||Higher Upfront Investment|
|Financing||You pay up to 25% of the property’s home price as a down payment, while the bank pays the rest||Lower Upfront Investment; Multiple Lending Options; Low Interest Rates||Monthly Mortgage Payments|
|SDIRA||Uses funds from your IRA account to purchase real estate||Save for Retirement; No Cash Needed||Profits Stay in SDIRA; Expenses Paid from SDIRA|
|1031 Exchange||Allows you to take the equity of one investment property and exchange it for new properties||Tax Deferral; Get Higher-Performing Properties||Strict Timeframe; Must Currently Own Rentals|
|Solo 401(k)||Uses funds from your self-directed retirement plan that’s designed for owners of small businesses||Tax-Deductible; Save for Retirement; No Cash Needed||Set-up Fees; Must Not Have Full-Time Employees|
Place Bid. Once you select your funding, you have to handle all the documentation and paperwork for your funding option, so that you’re ready to place your offer quickly on the rental. To make an intelligent bid on the investment property, use comparable homes sales in the area and have a local real estate professional vet the property.
Inspection and Analysis. When the bid is accepted and property goes into escrow make sure the property is still a sound opportunity for you by minimizing the possibility of unforeseen issues. You do this by conducting an inspection, appraisal, and evaluation by a licensed contractor.
Closing. To get the title of the home, you must complete all the necessary paperwork to close the property in your name and own the title. Work with your lender to have this completed as soon as possible. The faster you move, the quicker you start earning your returns.
Stage 3: Asset Management
To get your rental rent-ready and generating cash flow, you need to perform the following tasks to get tenants in place:
Renovation. Since you will be using your investment as a rental for tenants, the primary goal of renovation is to stay within budget, while also attracting tenants. By making well-defined, strategic renovations you can do both. Here are some common upgrades we conduct at HomeUnion® when we transform all properties into a HomeUnion® Home:
Marketing. After renovation, you need to quickly market your property to find quality tenants. Here are some marketing tips to generate tenant applications.
Tenant Screening. Once you have applicants, you need to screen them properly to ensure you find quality tenants who will pay on time and treat the property as if it was their own. Here are some tenant screening guidelines.
Leasing. Once you’ve accepted an applicant, require them to sign an annual lease and walk them through the property. By being on-site or having someone there on your behalf, you can hand the keys over, verify the condition of the property before move-in, and answer any questions.
How to Get Started
With so many stages and steps, we know that real estate investing can seem overwhelming. You can set yourself up for success by working with trusted partners. Investing success comes down to having the proper guidance; which is why the experts at HomeUnion® can assist you with every important step in the process. When investors work with HomeUnion®, every facet of their real estate investing process is performed by us to create a more efficient and streamlined process – a fact confirmed by our strong client success rate.
Our clients appreciate the fact that – instead of having to hire a long list of separate entities (like a realtor, contractor, lender, etc.) as well as perform the many details necessary to successfully invest – they can depend on our team to do it all for them instead. At HomeUnion®, we:
- Identify the best potential investment properties
- Quickly carry out the entire acquisition process
- Provide you with expert and hands-free property management
When you work with HomeUnion®, you can rest assured that we will take care of the whole process on your behalf. A superior real estate investing process is well within your grasp. Just schedule a consultation with one of our Solution Managers now.