Blog | Real Estate

The 4 Essential Steps to Become a Successful Real Estate Investor (And The Team You’ll Need Along the Way)

Everything you need to know to become a successful real estate investor; step 3 might be the most crucial.

summary

• When investing in real estate, make sure to start at the right step.

• Building the right team is essential to your real estate investing success.

• Here’s a tip: only buy property after steps 1–3 are complete.

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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 successful at real estate investing.

Step 1: Establish your personal investment philosophy

As 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 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 to 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." This is why Step 3 is the most important one on your real estate journey. 

In order to be successful in any market, especially ones that you don't live in, you need to have the right team.

Successful real estate investors realize the value of surrounding themselves with experts in a range of areas—taxes, the law, real estate, insurance, property management, etc. When these experts come together out of trust, respect, and a mutually desirable outcome, they learn from and support each other, effectively improving the outcomes and streamlining the process.

Building your perfect team

Here’s a typical list of advisors and experts that you might want to consider adding to your investment team:

• Real estate brokers: Realtors or other agents are your eyes and ears to the real estate market, so they’re essential parts of the team. They know the trends, they recognize patterns, they know the market, they have access to information you need, and they can tip you off to deals.

• Real estate lenders: These people might be mortgage brokers or loan officers at financial institutions, or they may simply lend money as private individuals. Your lender can tell you what you’re qualified to invest in, and, hopefully, is prepared to support you in your purchase. It’s a good idea to get quotes from several lenders, to be sure you select the one best for you and your situation. On a side note, you may opt to find other sources of investment capital, including friends and family members. Sometimes this is a great solution, but sometimes it ends up making things worse. Money has a way of interfering with relationships. If you’re planning to go this route, you spell everything out in writing in a formal document that clearly defines the “exit strategy”—Would you sell the property? Buy the other out?—before you enter into the arrangement. Emotions can heat up during an investment, and it’s a good idea to have a logical, peaceable agreement in place to govern what happens before that emotion overtakes sanity.

• Real estate attorney: Some states and jurisdictions require real estate attorneys to preside over all real estate transactions—the laws vary by location, so be sure you select an attorney who is familiar with the area and type of real estate in which you plan to invest, and who actually specializes in real estate.

• Bookkeeper: A bookkeeper is a valuable resource to have, as he or she will assist you with the day-to-day oversight and management of your books and records. You might opt to tackle this yourself as you get started, but what often happens is that investors quickly realize that they’re spending valuable time on these administrative tasks that they should be devoting to their investment activities. Hiring a bookkeeper is an investment in accuracy, as well as your valuable time, and it is well worth it.

• Real estate accountant: Your accountant will analyze the records that your bookkeeper provides and ensure that your financial records are in order and compliant with the law.

• Tax accountant: This may also be your real estate accountant, but he or she will not only know the law as it pertains to your taxes, but also the tax ramifications and loopholes inherent in real estate investment. A good tax accountant is an invaluable member of your team, and in the case of an IRS audit, he or she will represent you. Ultimately, this person always has an eye toward minimizing your tax obligations.

• Insurance agent: You’ll need to find an agent who specializes in real estate to make sure you have insurance coverage on your properties to cover risks and liabilities.

• Property manager: Although many people manage their own properties, especially as they just begin investing in their first properties, a property manager is a wise investment that can save you a lot of time and money.

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 hard to find the right one.