As we make our New Year resolutions and move to achieve those resolutions, many of us have already failed. And here we are only in January. There are a lot of data sources and numbers vary, but it is said that normally only about 8 percent of people’s New Year’s resolutions actually get achieved. Meaning, 92 percent of New Year’s resolutions fall to the wayside and do not get achieved.
What you want to focus on—whether new, part-time or weekend investor—is that 2017 is going to be the year to have a real estate resolution. A resolution where you are going to begin investing in residential real estate. For those individuals who have one of those resolutions, let’s talk about what it will take to be sure you are part of the 8 percent, the minority who successfully achieve their New Year’s resolution. And not become part of the majority or the 92 percent of resolutions that never get achieved. So, what is it going to take, in 2017, for you to be successful with your real estate resolution? And in the spirit of simplicity, let’s talk through what it’s going to take to keep your real estate resolutions. Keep the resolution simple, especially if you are a new investor who is just starting out in real estate investing. If you create a resolution that is too complicated, too lofty to be achieved or so complex you can’t get your head around how to pursue it, guaranteed, you will be part of that 92 percent.
Set Your Property Purchase Goal
First and foremost, you’ve got to decide the quantity of real estate investments you want to make in 2017. To put it into perspective, ask yourself, am I going to buy one, two or three houses in 2017? Will I buy a duplex, condominium, one, two or five townhouses in 2017? You have to decide the number of units you intend to purchase as real estate investments. Like I said, it can be any number of properties, all dependent upon your desire and resources. This will indicate the quantity, but the key is you’ve got to be realistic. Or you will obviously set yourself up for failure. Now keep in mind, as with most things in life they are more difficult than what appears on the surface. They may take more time, more money or perhaps more effort to achieve. Despite what you might see on TV, hear or read, it’s not always as easy as it seems. There are many facets, so keep that in mind as you make your 2017 real estate resolution.
What’s important though, is that you start. You make the first investment if that’s your goal for 2017. And I can tell you, from personal experience as a full-time real estate investor in a Dallas HomeVestors business, all my colleagues do the same every new year. Our conversations always lead to how many houses we are going to buy. I can assure you though, all competent professional real estate investors, regardless of their size or their goals, know how many investment transactions they intend to accomplish in 2017. They know exactly what it’s going to take to accomplish it. As a new investor, you should, too. You know what you are going after. Commit to it. Define it. And go after it.
How Much Capital do you Have Available?
As a real estate investor, once you know how many transactions or properties you are going to purchase in 2017, you’ve got to understand and confirm the capital you have at your disposal. You should probably confirm your capital first because that is going to determine what properties you are able to purchase. Make sure you know both metrics and the capital number so you think about it in realistic terms. As a new investor, there’s a very good chance when purchasing one property, if using a mortgage or some form of funding, you’re still going to have to come out of pocket 20 percent of the purchase property. Say you buy a $100,000 property; that’s $20,000 out of your pocket. You will also need capital to rehab that property, to some extent. And depending upon your lender, some of that money may have to come out of your pocket. Some lenders are willing to lend you rehab funds, but keep in mind that is another expense in addition to the $20,000 you put down on the property. Let’s say you need another $10,000 for carpet, paint, etc. That’s $30,000 out of pocket on a $100,000 property. Also, don’t forget there are going to be closing costs when you purchase the property. And these will vary depending on the lending solution you are using. Other expenses you may need to pay are upfront points, inspection, survey, title commitments and appraisals, just to name a few.
These expenses can quickly become 5 percent of your purchase price, which would be $5,000 on a $100,000 house. You can see how your capital requirements can add up. Do this first: determine what capital you have access to, since this could very well dictate the quantity of properties you will be able to buy.
Always Know Your Exit Strategy
So, you know how many properties you are going to buy in 2017. You know the capital you will have available in 2017. Now make sure you know your exit strategy.
Let’s say you determined you have enough capital to acquire one investment property in 2017. Before you go out and start looking at properties, have the end in mind. Understand, determine and define your exit strategy.
And here is what I mean by exit strategy: Is this going to be a buy-and-hold investment? Are you going to buy it, repair it and rent it out, or hold it long term as a rental property? Or is this going to be a fix-and-flip property? Buy it, repair it and then sell it on the retail market by using a Realtor and or the MLS? Or are you going to wholesale the property? That’s where you buy it, and turn around and resell it off-market for cash as-is to another investor. These are three fundamentals and three common real estate investment strategies: buy-and-hold, fix-and-flip or wholesale.
Determine what your objective is with your one investment property. What is your exit strategy? And as you recall, begin with the end in mind. Meaning, determine your exit strategy now, then go find the property that will fit your capital and your desired exit strategy. It’s important you do your exit strategy determination now because it is going to influence what you buy. The property you buy to fix and rent could very well be a very different property at a different price point in a different area of town compared to a property you buy with a fix-and-flip exit strategy. And that fix-and-flip strategy property could also be a very different property, very different price point, a very different part of town when compared to a property where your strategy is wholesaling. So, determine your exit strategy up front because it will influence what you buy and what you spend capital on.
These are three simple tips to make sure you are part the minority, the 8 percent resolution makers who succeed. Determine the quantity of properties, determine the capital you have and the exit strategies you are going to use and you will stand above the 92 percent of resolutions that fail in 2017 and you can be successful with your real estate resolution.
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About the Author
Kevin Guz is a Dallas, Texas-based residential real estate investor with more than 10 years of investing experience. He owns a HomeVestors (or “We Buy Ugly Houses”) franchise as well as the Clear Key companies, which focus on residential real estate wholesaling, rental property management and self-storage leasing. He also is a licensed real estate agent in the state of Texas. He enjoys sharing his ongoing personal experiences, perspectives and learnings from his start as a part-time or “weekend investor” and full-time corporate professional through his ultimate transition to a full-time real estate investor and business owner. You can listen to his podcasts at http://www.blogtalkradio.com/kevinguz.