When talking with investors who have challenges with their newly purchased investment properties, I can always trace those challenges back to one thing: The investor missed a necessary step in the purchase process.
I encourage all investors to create a process that works for their particular investment objectives and duplicate them for each investment. Here are the steps I use and share with my investor clients every day.
Step 1: Focus and plan your investing
This first one I find to be the most important, and yet the one I find investors forget. I always see that the seasoned investors plan their purchase and know exactly what they are looking for. How much will they spend? What will their exit strategy be? They know if they are looking to buy and flip or buy and hold. Most importantly they know why they have these goals. Understanding the why will create the clarity for the investment. The investor who simply is looking for a good deal often will not even recognize the good deal as he does not have it mapped out.
Step 2: Establish funds for investing
Will you pay cash or will you finance and why? If you will finance you will want to talk to lenders and shop for best program and get pre- approved. Now more than ever with the lenders changing rules and regulations, having finances and down payments in place is paramount.
Step 3: Establish an entity structure
I always find it best to talk with a tax and/or legal adviser on setting up a proper entity to purchase your investment for liability and tax purposes. Every investor’s financial situation and objectives are different. Getting a proper entity set up can be completed after a purchase; however, having this done in advance may better serve you during the process.
Step 4: Find the best real estate investing market
I have spent years mastering this one, as did the Trumps and Buffets of the world. With 381 Metropolitan Statistical Areas (MSAs) it is important to find the market that can produce the best results for your objectives. Years of studying markets, looking for the most sustainable markets, has shown me that not all markets are created equal and the successful investor always invests in the best markets poised to produce the required results.
Step 5: Identify your real estate investing power team
I have found that every investor, whether he has stopped to think about it or not, has a real estate team. Real estate attorneys, accountants, real estate brokers, turnkey property companies, title companies, trades people, etc. Identifying the best power team and sharing your goals with them will help ensure everyone is diligently working to accomplish the same common goal. Often your real estate broker may already have a team in place. This is a great question to ask your real estate professional when you are shopping markets. Do you have your own real estate power team already in place? Then you may want to talk with each of the team members.
Step 6: Identify your property and complete your due diligence
I have found all too often that people find the property, then work backward, occasionally missing a step or two. Compare your top choices and identify the best property that will obtain your goals and objectives. Once you do your proper diligence on the structure and the income and expense, you are ready to negotiate the offer.
Step 7: Purchase and close
If I may offer a simple reminder, as believe it or not often these things are forgotten, remember the title insurance and the property insurance. Cash buyers are most apt to forget this step.
When you work with a great real estate team these steps should become commonplace. I always see the most successful investors have a system that they duplicate for each and every purchase. This helps them to have consistent results and investments worth owning.