The 4 Essential Steps to Becoming a Successful Real Estate Investor
Why most investors start on the last step and fail
Many people want to be successful real estate investors. The problem is that the average person starts at the last step of the investment cycle rather than at the beginning. Because of this, they often fail.
What is the last step? The property.
It seems counterintuitive, but the property is actually the least important part of becoming a successful real estate investor. In fact, you could have one of the best properties in the world, but if you don't complete three crucial steps prior to buying that property, chances are that, for you, the property will be a huge disappointment.
Here are the four essential steps needed for being a successful at real estate investing.
Step 1: Establish your personal investment philosophy
As my friends Robert Helms and Russell Gray, the Real Estate Radio Guys, often say, "There are no problem properties; there are only problem owners."
There is always a right owner for any property, which is why it's key to determine what kind of owner you are before you ever invest any of your hard earned (or your investor's hard earned) dollars into an investment property.
Investing is a lifestyle, and you have to determine what kind of lifestyle you're looking for.
Some important questions to ask:
- What do you want real estate to do for you?
- Where do you want to go in your investing journey?
- Who do you want to work with?
- What do you want to spend your time doing?
The Real Estate Radio Guys share a story about a C class apartment investor that netted $1 million a year. They were excited to meet him because many of their students aspired to have that kind of income from a property. But when they met him, their whole paradigm changed because he was working 16-hour days, 7 days a week, and he hated his life. Money wasn't the problem. His personal investment philosophy did not match the reality of the property and location he picked.
There are other investors, however, who live to work on and invest in C class apartments. It's all about what you're looking for in life. Your mission as a real estate investor is to make sure you understand clearly who you are, what you want out of real estate, and then make sure that what you acquire fits that mold.
Step 2: Determine what market you want to be in
Another saying I like from The Real Estate Radio Guys is, "Live where you want to live; invest where it makes sense."
Many people think they need to invest in their own backyards. While that may be a good idea, it's not a necessary one. Rather, you should find a market that meets the needs of your personal investment philosophy.
For instance, if your personal investment philosophy were to invest for monthly cash flow, it would make no sense invest in a number of properties with an aggressive, highly leveraged debt ratio that allowed for no cash flow. Nor would it make sense to invest in a high appreciation market where prices didn't pencil out for positive cash flow.
Rather, you would need to find the right market that provided affordability and cash flow, even if it didn't appreciate much. For cash flow investors, that's a great market. For flippers or appreciation investors, it's a nightmare market. But you only know that if you understand what kind of investor you want to be.
Step 3: Assemble your team
As rich dad said, "Business and investing are team sports." In order to be successful in any market, especially ones that you don't live in, you need to have the right team.
This team should include an attorney, a CPA, a bookkeeper, and a real estate agent and/or broker, and you should rely on them heavily to give you expert advice about your market and the properties you'll be looking at.
Without a team in place to give you expert advice, the chances of you making a huge mistake are high.
Step 4: Purchase the right property
Finally, and only after determining your personal investment philosophy, finding the right market, and assembling your team, should you start looking at properties.
And if you do steps 1-3, it won't be are to find the right one.