There’s no doubt that beginning as a real estate investor is invigorating. When market conditions are right, you can stumble backward over huge opportunities. Even though owning your own real estate business is a lot of work and there is definitely risk—perhaps more than you’ve ever taken on in any venture—the exhilaration you experience when you receive your first flip check or realize you are now truly “cash flowing” is tangible and real.
Still, the inevitable questions follow: Are you a one-hit wonder? Did you get lucky, or is real estate a real career option? Could it eventually be your only stream of income? They are all valid questions. The answers come down to this: After taking a huge risk, you’re looking to either take a bigger one (we call these people reckless) or start minimizing risk and turning your real estate hobby into a real business.
There are three main strategies for getting to the next level and becoming a smart investor:
1. Protect Yourself from Failure
Two services are a bargain when you use them preventively—but infuriating when you need to use them as reactionary measures: legal and accounting.
There are several valid legal structures that can work for your real estate business. Take the time to craft a legal strategy that you understand and that fits your needs. Use a lawyer you trust, if you have one. If not, meet with several different attorneys or firms to find a good fit. You need someone who will answer the phone, explain things in an understandable way, and know that you are interested in their help to prevent future issues.
Likewise, finding a good accountant and bookkeeper can make or break your real estate business. Once you create a legal entity, be diligent in pursuing accounting strategies to enhance your business.
If you don’t know how to read financial statements, your accountant can teach you how. Learn to understand the big picture, so you always know where you stand financially.
Learn what it means to “co-mingle” funds—and why you should steer clear of doing so. Record your transactions as quickly as possible. Keep all your receipts and deliver them in a timely manner to a bookkeeper.
Strategize annually, if not more often, about tax benefits you should be taking advantage of. Optimize expenses at every opportunity.
You will never regret the money you spend on good accounting.
2. Know Your Market
A lot can be said about investing in your local market. If you’ve lived in an area for a while, you’ll probably know the schools, the rental occupancy rates, the emerging areas for fix-and-flips, and the investable neighborhoods where you could bring in a money partner to take advantage of potential future booms.
But it’s very possible the area where you live is no longer great for real estate investors. If that’s the case, don’t give up on investing; just find another area. Now that you understand markets and know what you’re looking for, you can live in one market and start working in another. There will be a lot of logistics to work out, but use your resources to get all the key measurables and then build your business in the other markets.
Just remember, you must know the market. Plug into the nuances of the new area and do your research. You’ll be glad you did, and your business will thrive because of these efforts.
There are opportunities available in just about every market, but not every market will fit your strategy, available resources, and time. Analyze several markets and give yourself a choice. When you’re ready to shift geographically, options will help you make a better choice.
3. Analyze Every Deal
Whether you use spreadsheets from a mentor, software programs, or real estate contacts, analyze every deal, every time. It’s important to know the numbers and the projections. No matter how good a deal looks, if the numbers don’t work, you must be willing to walk away.
Good analysis will help you manage your expectations. Nothing will kill morale and maybe even your business as quickly as a bad deal. You know the effort it takes to get a place rehabbed and ready to sell or rent out. After all your efforts, if you can’t get the price or the rents you need to make it work, you’ve put yourself in a bad spot. Good analysis in the early stages can make all the difference.
The purpose of software companies like Housefolios is to make that work easy. Analyze deals in seconds, get immediate feedback on how much potential a deal has, run comps to see what your resale opportunities are, and simply get a good picture of what needs to happen to make a deal work. Finding a good deal can be hard, but not nearly as hard as trying to breathe life into a deal you didn’t analyze properly.
In the end, invest in your own success. Following these few simple guidelines will make your life easier, make your business grow faster, and give you peace of mind during the process. Plan it, study it, and know your numbers. The rest will fall in line.
Rob Fuller has been investing in real estate for more than 10 years. In 2015, he formed ROI Property Group, LLC, a California-based LLC that develops, builds ground up, and runs a fix-and-flip operation. The company’s strategic approach includes analysis, technology, acquisitions, and field operations.
Fuller is also the CEO of Housefolios, a prop-tech company based in Provo, Utah, designed to help Fuller run his real estate business. It has expanded for use by other real estate professionals to organize and add value to their business.
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