5 Pillars Of The Real Estate Landscape In 2016
By Paul Esajian on December 11, 2015
There is a lot to learn as a real estate investor. The minute you start to understand one area, another one will present itself. While it is difficult, if not impossible, to master all of them, you should have a core understanding of the most important areas of the business. These areas deal directly with the purchase options that are available, and how you can finance your projects. They are the basis for how you generate income as a real estate investor. The more you know about each of them, the greater the likelihood you will be successful. If you are struggling with where to start or how to get to the next level, here are the five pillars of real estate that will shape the 2016 landscape:
1. Rehabs: In today’s market, rehabs are currently the most popular form of investing. While rehabbing may appear simple, there is a lot that goes into it. If you are not knowledgeable of all the various steps, you can run into trouble. Getting the property at the lowest possible purchase price is the first step. Even though you are rehabbing, and not holding long term, the purchase price still impacts your bottom line. From there, you need to fully understand all of the expenses involved. The expenses are more than just the closing costs. They also include the holding costs, taxes, insurance, insurance and utilities. The next step is to fully understand all of the repair costs. Experienced investors know where to spend money and what works in certain areas. Without this experience, you can easily overpay for repairs or not do the right work. After you are done with everything, you still need to sell the property. This takes an understanding of the market and comparable sales. As you can see, there are many layers to a rehab, all of which are important.
2. Financing: The best plans in real estate won’t get too far without financing. Before you do anything else, you need to know how and where you will finance your deals. In the past, if you wanted financing, local lenders or brokers were the most popular options. While they are still a viable option, they are no longer the only game in town. One of the biggest changes in the industry over the past couple of years has been the increase of financing options available. Where there was once only a handful of hard money lenders, there are now multiple options in almost every market. The surge in popularity has always piqued the interest of many private money investors who have money but don’t know how to get started. You can also tap into retirement accounts, credit cards and other methods to find financing. Before you commit to anything, you should take some time and educate yourself in each of these areas. You may not think you will use one of them today, but you never know what the future holds.
3. Rentals: One of the best ways to generate long-term wealth is through buy and hold real estate. Being a landlord can be difficult at times, but the rewards greatly outweigh the negatives. Buying rental properties is similar, but not the same as looking for rehabs. With rental properties, you are more focused on the location rather than the physical property. Like other areas of real estate, you should let the numbers be your guide. It is important that you know and understand all of the monthly expenses. There is much more to monthly cash flow than just the principal, interest, taxes and insurance. You need to understand how much in the way of reserves you need, vacancy factors, maintenance budgets and miscellaneous expenses. The idea of walking to your mailbox and collecting rent every month is appealing, but you need to know everything that goes into it.
4. Wholesale: Many new investors get started on the wholesale side of the business. The idea here is finding discounted properties and assigning the contract over to a fellow investor. Doing this allows you to earn money on deals where you may not have the capital to complete yourself. This is a low risk way to learn the business, develop contacts and understand how to structure deals. It is also great experience in talking to homeowners and negotiating to get the best possible deal. The returns will not be great early on, but the bigger your database gets, the more deals you can close. The goal for anyone in real estate should be to earn something anytime an opportunity presents itself. A deal that comes your way may not work for you today, but could be a good wholesale option. Without understanding what wholesaling entails, you could miss out on a chance to make a profit.
5. Lead Generation: Lead generation is the backbone of your business, and something you should focus on every day. There are dozens of low cost ways to get your phone to ring. Take the time to learn as many different options as you can. Some of these can fit with your budget and vision of the business. Without new leads coming in, your business will be stuck in neutral.
There are many areas of the business to learn, but these are the five most important ones to focus on. It is best to focus on one at a time, or at least until you feel comfortable enough to move in. This may take some time, but will have a big impact on your business.