6 Steps to Becoming a Successful Real Estate Investor

Residential area in the city, modern apartment buildings

The opportunities to make money in real estate are endless. If you are a real estate agent or broker, you can increase your short term and long term earnings significantly by starting to invest in real estate as well. As an expert on real estate, you benefit from major advantages compared to other first-time investors. In this article we show you how to capitalize on your competitive advantage and become a successful real estate investor. 

Step 1: Analyze the Local Housing Market for Investment Opportunities

The first step to investing in rental properties – regardless of whether you are an agent or not – is conducting thorough real estate market analysis. The idea is to look at property price values and trends, available listings, and property types for sale. It is important to establish if the local market is a buyer’s market or a seller’s market to know what competition you should expect from other property buyers. However, as an agent, you have a major advantage in this regard compared to other investors. You know the answers to most or all of these questions, which minimizes the time you need to spend on market analysis. Furthermore, agents can buy investment properties even in hot seller’s markets much more successfully than other investors as they are expert property finders and negotiators.

Step 2: Evaluate the Rental Market 

Once you decide that buying a property in your area is a good opportunity at the moment, you should perform rental market analysis. The goal is to identify what return on investment you can expect as a result of the prevailing rental rates and occupancy rates. You should assure that the local market can bring you a positive cash flow investment in order to increase the amount of money you make from real estate.

Furthermore, analyzing the rental demand and supply in the area will tell you whether traditional, long term rentals or Airbnb, short term rental properties bring a higher rate of return. This will help you choose the optimal rental strategy and focus your property search on the best property type for this strategy. Selecting the best rental strategy is crucially important for the success of a rental property business. Nationwide analysis conducted by Mashvisor, a real estate data analytics company, shows that in the vast majority of US markets long term and short term rentals yield drastically different rental income and return on investment.

Once again, as a real estate professional, you already have much of the knowledge you need to complete the rental market analysis quickly and efficiently.

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Step 3: Get Pre-Approved for a Mortgage

The next step in starting investing in real estate is getting pre-approved for a mortgage. As an agent, you know how important this is. Buyers who have been pre-approved are considered significantly more reliable and serious which is particularly important in hot seller’s markets where a few buyers compete for the same property. To get qualified, set up a budget based on your savings and income and bring all relevant documents to the bank. You should use your knowledge of local financial institutions that you’ve accumulated throughout your real estate career to focus on the best options. It is recommended to talk to a few different banks including both small local and big national ones. Different credit institutions offer various interest rates and other mortgage terms. 

Step 4: Look for Properties for Sale

After you have established that investing in rental properties is a beneficial real estate strategy in your market at the moment and you have been pre-approved for a mortgage loan, the time has come to start searching for properties for sale within your budget. As a first-time investor, you should set up a budget and stick to it. One of the gravest mistakes which beginner real estate investors make – and against which agents are not protected – is exceeding their budget because they fall in love with a certain house. Buying an investment property is a business decision which should be based on calculations and rationality rather than on your emotions. Thus, make sure to focus your property search on homes for sale within your budget only to avoid getting tempted. 

As an agent, you have immediate access to the MLS, something which other investors don’t have. This fact gives you a competitive edge which you should take advantage of. However, you should not limit your search to the MLS only as there are many other sources of off market properties. Investing in off market properties comes with many benefits such as less competition from other buyers and lower prices. Refer to your real estate network and check for any properties for sale which have not been officially listed on the MLS. In specific, contact clients to whom you sold a home a few years ago as they might be interested in buying a new bigger home in another neighborhood. Get access to homeowner data in your market and make some cold calls to see if someone might consider selling his/her home if a good opportunity arises. Don’t underestimate the potential of driving for dollars and take a look at “For Sale” signs in the local real estate market.

Another great source of investment properties are foreclosures, bank-owned homes, and short sales. To search through those, you can visit the websites of local banks and other financing institutions. Moreover, you should talk to other real estate agents from your network who specialize in this kind of properties.

Make sure to diversity your property search as much as possible as each source will provide you with different types of properties within different price ranges.

Step 5: Analyze the Potential of Properties

The next obligatory step in buying an investment property is to perform investment property analysis on a number of different listings. This analysis should be based on rental comps, i.e., the prevailing rates in the local market, to evaluate how much rent you can charge for these properties and what vacancy/occupancy you can expect. You also need to calculate all recurring expenses such as property tax, home insurance, HOA fees, maintenance, property management, and others. The difference between the rental income and the rental expenses will provide you with an estimate of the cash flow. As a first-time real estate investor, you have to remember to go for a positive cash flow property as that’s the only way to make money rather than lose money in real estate. Last but not least, you must calculate what return on investment your property will be able to bring you, as both capitalization rate and cash on cash return. A good cap rate and cash on cash return for rental properties are usually considered 8% or more.

To facilitate the process of analyzing potential investment properties, you should use the right tools. Even as a real estate agent, you will need a few weeks to conduct analysis on a few properties, which might get solved by the time you are ready to move forward with their purchase. Alternatively, you can get access to various online calculators which will help you analyze properties in minutes.

Step 6: Buy a Property

The last part of the process of starting to invest in real estate is to actually buy a house. That’s something you are already an expert on as an agent.

Investing in rental properties is a lucrative strategy to make extra money for everyone, but it comes with some additional benefits for real estate agents. Just follow the 6 steps outlined above to diversity your real estate career and expand your earnings.

About the Author: Daniela Andreevska is Marketing Director at Mashvisor, a real estate analytics tool which helps real estate investors and agents quickly find traditional and Airbnb investment properties. A research process that’s usually 3 months now can take 15 minutes. Moreover, we connect investors ready to buy with top performing agents in the local housing market.

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