Your First 90 Days in Real EstatePosted on May 2, 2014 by
Are you just getting started in real estate or are you thinking about getting in? This article is to help you get off to a great start in the business.
What are you trying to buy? Do you want to start small such as single family houses or smaller multifamily such as 2-4 units? Maybe you want to go big early and get into commercial real estate such as apartment buildings or self-storage. Whatever your goal is, you need to start with an education. Find material on that type of asset that will teach you the basics of what you need to know.
Know your market. Now that you know what you want to buy, you need to know where you are going to buy it. You need to decide on a market or city. My suggestion is to start in your own backyard. I define “backyard” as the area within a 1 hour drive from your home. The closer to home you can start the better. The more travel you have to do to get to your property, the more obstacles will get in your way. The cost of travel goes up (possibly plane tickets) the farther away from home you get as well. Lenders and investors get a lot less comfortable with your deal as the distance from you increases.
Once you have picked a market you will need to study that area. Here are some things to know…
- The good and bad sides of town.
- The city demographics such as median incomes and job growth
- The path of progress. This is the direction in which the city is currently developing. The new construction will be in this area.
- Know what part of the city you want to be buying in and what part you don’t want any deals in at all.
Start to build relationships with the agents and brokers in your area. You will want to start placing calls to the agents that have what you want for sale. Eventually you will get to know the sellers in your city but for now concentrate on building relationships with the real estate agents and brokers. Many people ask me what is the best way to find deals in their market and what I am telling you here is always my answer. There is no magic bullet to finding deals. Build the right relationships with the agents and they will feed you more deals than you will be able to handle.
When you first start calling commercial real estate agents or single family agents you will need to be able to quickly answer one all important question. “What are you looking for?”
You need to be able to quickly answer this question clearly and credibly. You will want to be able to list off these things-
- Property type
- Price range
- Area of town
- Distressed asset or not?
- Will you deal with a property that needs renovation?
- Are you looking to make a creative offer such as a master lease option or seller financing?
Once you have these questions answered then you will gain more credibility with the agents when you have them on the phone and they will take you more seriously.
Start analyzing the deals. You will want to keep in mind 2 concepts when you begin analyzing deals. One is the income approach and the other is the comparable sales approach to valuing real estate.
The income approach takes the total annual income of a property and subtracts the annual expenses. This equals the NOI or net operating income. From the NOI subtract the annual debt service (bank payment). What’s left over is revenue or positive cash flow. Here is the formula-
Income – Expenses = NOI
NOI – Debt Service = Cash Flow
As for the comparable sales approach or “comp sales” approach you will value the property based on what others have paid in your area for similar properties. You will want to know what deals like yours are selling for so you don’t pay more than that.
Take both approaches into account when trying to value the deal.
As a recap you will want to know what you are trying to buy, where you are trying to buy it and who is selling it. Once you have that then it’s a matter of finding a good deal. Your deal analysis will help you decide that. It’s a numbers game past this point. The more deals you analyze the more likely you are to find a good one. Good luck!