Five Steps to Begin Your Real Estate Journey

KEY POINTS:

  • Step 1: Set Clear Goals

  • Step 2: Choose Your Niche and Strategy

  • Step 3: Choose an Area/State that is Landlord Friendly

  • Step 4: Build a Real Estate Team

  • Step 5: Learn to Analyze a Property and Decide if it is Worth Pursuing

Real estate is a powerful tool for wealth building, providing numerous advantages over other types of investments. There are different goals when it comes to investing in real estate: appreciation, immediate income (i.e. flipping) or cash flow. At the moment, my main focus is to invest in real estate for cash flow.


Investors who are new to real estate are often unsure of where to start and may feel overwhelmed by the large amount of information out there. This article simplifies the process by explaining how to get started in real estate investing (for cash flow) in just five short steps.

Step 1: Set Clear Goals

Real estate allows for the creation of residual income for your family without requiring extensive trade offs in the form of time away from loved ones. Begin this journey by defining exactly what you want. An effective way to stay focused is to imagine the type of lifestyle you would live if you would achieve your goals. Would you reduce your employment hours? Not work on weekends? Would you spend more time with your family, take more vacations? Then ask yourself, what you would need to do to get there.


If you choose to own income properties, set a realistic, but specific goal...

How many rental properties do you want acquire in 2020? How about in 5 years? How much passive income per month would you need to have in order to cover your own personal expenses?


Real estate investing is not a get rich quick scheme. It takes careful planning and commitment. If you want to build something that lasts, you will have to be in it for the long run.

Step 2: Choose Your Niche and Strategy

Are you a flipper? A buy and hold investor? Or do you prefer to be a passive investor and lend to other investors? How about partnering up with a more experienced investor? Identifying the strategy of investing that you are most comfortable with is an important next step.

The core focus on this article will go over how to invest in real estate through rental properties and hold them for a period of time, generating passive income.

Step 3: Choose an Area/State that is Landlord Friendly

Before purchasing rental properties, you will want to consider states that have friendly landlord laws. It is important to be aware on how lease agreements, security deposits, and evictions will be handled in the state you choose to invest.


Landlord laws can also vary within different cities of the same states. Some cities may require yearly inspections, while other cities require an annual fee per property. These fees can add up and require more attention. I suggest calling a few property managers in the cities you’re considering to get local insights.


Click here to read more about specific landlord laws 

"The top 8 landlord friendly states include: Texas, Indiana, Colorado, Georgia, Kentucky, Mississippi, Arizona and Florida"

Step 4: Build a Real Estate Team

This is one of the hardest parts. Having a high performing team in any business is essential for success. The biggest mistake new investors make is that they spend too much time looking for the perfect deal, and when they do find one, they do not have the right team members to make that deal happen.


4 Core Members of your team should include:

  • (1)A driven, trustworthy realtor who will source deals for you based on your criteria.
  • (2) You will also need a contractor who can visit properties promptly to give an accurate and fair bid on the project.
  • (3) If you don't want to manage the property yourself, you will also need an experienced property manager on your team. A good property manager should know the neighborhood, how to price rent appropriately, how to screen tenants, and - most importantly - should be easily available to respond to tenants’ requests and any questions you may have.
  • (4) Other team members include a good investor-savvy CPA and attorney.

Start by introducing yourself on the Bigger Pockets forum and letting others know what your specific goals are and where you want to invest; doing this will typically lead to many potential team members vying for your business.

Step 5: Learn to Analyze a Property and Decide if it is Worth Pursuing

The basic benefit of investment real estate is its ability to produce rental income. It's all about the return on investment, so fall in love with the ROI, not the property. Like many things, real estate is a data-driven numbers game.

The most important rule in buy and hold investing is the 1% rule.

When you are presented with a property, you need to quickly decide if it is worth purchasing.   The 1% states that the monthly rent should be at least 1% of its final price (purchase + rehab costs).

Example:  if the property is $100,000 and is rent ready (no rehab required), then the monthly rent should be at least $1000. However, if the purchase price of the property is $50,000 and it will cost an additional $25,000 to get the property rent ready, then the monthly rent should be 1% of the total cost of the property including rehab, in this case, $750/month.

Property Cost
$
Min Monthly Rent
$
Property Cost
$
Rehab Cost
$
Min Monthly Rent
$

100 x Monthly Rent = Maximum Purchase Price (or all-in price)

You can also use the reverse of the rule

Example: Let’s say you know a property in a specific area rents for $1,000/month. You could quickly calculate that you cannot pay any more than $100,000 (100 x $1,000), including any rehab. So, if you saw a property that is rent ready listed for $90,000, this is a property worth looking into. However, if that same property was listed for $120,000, you would quickly move on. Understanding and applying this rule is an excellent time saver.


Keep in mind that the markets with the highest ROI may not be in your own backyard. If you live in a state where the 1% rule is not possible, it is wise to look into other states where it is more achievable.

If you are paying cash for a distressed property and increasing its value through rehab, I recommend that the rent be at least 1% of the ARV (After Rehab Value) or at least 1.3% of the “all in price” 

Summary

Real estate investing takes a lot of time, hard work, and also extensive research. If this is new, it can feel very daunting, especially if you decide to invest out of state. I challenge you to become a member of www.biggerpockets.com, listen to all the podcasts, read the blogs, and introduce yourself to the community. More importantly, listen to the stories of successful entrepreneurs and investors. The common core among all successful individuals is: failure. However, do not let the fear of failure prevent you from starting or disrupt your progress. Stay motivated, remain focused, and push forward.


The hardest part is simply getting started. I like to remind everyone that all millionaire investors started with one single property. Happy investing!

Want to learn how to Read more REI Books? Check out  Recommended REI Books/Podcasts

Want to get a full blueprint on How to start? Buy our Book The Optometrist's Guide to Financial Freedom

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About Julie Phan

Dr. Phan is the co-owner (along with her husband, Toan Nguyen OD) of a highly successful optometry private practice in San Marino CA while also running a Sam’s Club sublease in nearby San Bernardino. Always the entrepreneur at heart, Dr. Phan also invests in rental properties. Through leveraging a talented team of realtors, contractors, and property managers spanning five states, Dr. Phan has steadily built a real estate business that generates consistent passive income. Along the way, she hopes to inspire friends, family, and colleagues about the value of real estate investment so they can work towards their own financial independence. Follow Julie's REI Journey on IG @ house_hustle at instagram.com/house_hustle/

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