Crash course on Real Estate Investing – 85 actionable steps to take now to be a much better real estate investor and feeling like a pro
How to Invest in Real Estate Series:
Real estate investing is a great path to achieving your first million+ dollars – if you do it right. Here is a crash course on becoming a pro real estate investor.
Real estate investing is a great path to achieving your first million+ dollars – if you do it right. Here is a crash course on becoming a pro real estate investor.
My husband and I use to believe that we could do it all. We managed a full-time career and moonlighted as property managers, handymen, and cleaners to maximize cash flow on our rental properties because we were frugal. We traded time to save more money. After spending years of endless weekends and weeknights fixing houses and breathing in construction dust, we decided to throw in the towel and outsource everything. We made drastic adjustments in our real estate portfolio to meet our lifestyle rather than the other way around.
After nine years of investing in real estate, I’ve condensed my mistakes into four main themes. I suspect that almost all real estate investors have gone through at least one, if not all of these mistakes, but I hope that I save you some pain by sharing 85 tips to becoming a much better real estate investor.
If you’re not making mistakes, then you’re not doing anything. I’m positive that a doer makes mistakes. – John Wooden
1) Insanely Unfulfilling Real Estate Investment Plan:
My old real estate investing plan was to buy 25 properties and consolidate it to 10 to earn 10,000 per month. I thought it was doable. I wasted years obsessing over the ‘next’ property and thought that having more properties was what I really wanted – in reality, that’s what the investment gurus preached and I was just an obedient student. I also realized there is no way I can do this alone nor did I have a BIG picture financing plan. And more importantly, I realized that this plan doesn’t align with my life goals of having more time to do the stuff I really want to do! Learn to do a reality check once in awhile – check whether you are running with your plan or letting a plan run you.
What you can do differently to launch an amazing plan and live a happy life:
Define your values and life goals and vision to figure out your motivation for investing in real estate.
Build a vision board (this is a visual way of figuring out what you want in life.
Commit to your why and take action.
Sort out your finances and eliminate your bad debt one account at a time.
Find investment capital – common sources for a down payment include savings, equity from your principle residence or ‘other people’s money’.
Draft out your real estate business plan to keep you focused and aligned with your values/priorities and vision. Be honest with where you are financially now and where you want to be. Fail to Plan and Plan to fail.
Do a frequent check in (twice a year minimum) on your business plan and be honest with yourself. Tweak it where needed for adjustments.
Talk to mortgage broker that is ideally an investor to ensure that they speak the same language as you and can support you in meeting your vision.
Work with your mortgage broker to build a financing plan.
Eliminate bad debt one account at a time.
Cancel the accounts once the debt is paid off to avoid raking up more debt (ex. Credit cards).
Consider consolidating your debt to one larger loan with a smaller interest rate to fast track paying off your deb.
Develop clear goals with target dates to help keep you focused.
Automate your savings so that you build your money pot for investing in real estate.
Build your investment capital, your sources of down payment could be savings, equity from your properties and/or joint venture money.
If you are planning to finance the property, always seek pre-approval for a mortgage. Make sure you have a solid credit score and the financial sources for a down payment.
2) Cheapskate Investor:
It is very enticing to save money by believing you can do it all by fixing properties on the weekends, showing properties on the weeknights, and scrubbing everything from ovens to toilets during tenancy turnover; all just to avoid overhead costs. But in reality, you are trading time for money. It gets tiring especially when you have more than three properties to manage, a full time job, kids and a life. Learn to outsource as much as possible and not sweat the small stuff. Although your properties don’t cash-flow as much, it’s worth it because you’ll have more time to live life and focus on growing your real estate investments!
Here’s how to conquer the ‘cheapskate investor’ newbie mistake:
Learn the ropes managing your first few real estate investments, but that will get old fast so..
Grow your real estate investments and outsource your property management, especially after 3 properties.
Live in each of your rental properties for awhile before moving out so you not only build up some cash in to the property but also learn all the nuances with the property.
Join real estate investing groups (online or in person) to learn from others, to grow your network and build your team.
Start interviewing referrals to build your real estate investing team.
Build a relationship with realtor who specializes in selling.
Build a relationship with a realtor who specializes in finding real estate investment deals (And is a real estate investor too with at least 5 years of experience!).
Build a relationship with an accountant who is also a real estate investor so you can maximize your rental deductions and understand your financial mission.
Build a relationship with a mortgage broker who is well connected to financial institutions + private money AND a real estate investor to help you overcome hitting a mortgage wall early in your journey.
Find reputable contractors for major renovations (like adding suites).
Find handy mans that are quick to respond to repairs (because they will happen).
Find a good painter, ideally not your handy man. A professional paint job is worth it because it is the biggest bang for buck.
Add cleaners to your speed dial because tenants can be messy.
Find neighbourhoods that work with your numbers and are less than an hour away from home to save you time.
Buy rental properties that are under market value so you made money upon buying.
Buy rental properties that are close to transit.
Check the walk score before.
Follow your real estate investing rules outlined in your business plan.
Specialize before diversify. Master one real estate investment strategy (for at least a few years) before moving on to another. The key is to choose a strategy that aligns with your lifestyle.
Learn handy man skills. You might need them.
Invest in handy man tools (hammer, saw, drill, tape measure, level, painters tape, brushes) because you will use them.
Read blogs (like mine), real estate investment books, hire a 1:1 mentor or take some courses/workshops to shorten your learning curve.
3) Skipping Your Homework:
I made the mistake of renting a bachelor unit to a tenant that didn’t have any credit nor a long rental history just to avoid a month of vacancy. Although the tenant paid rent on time, the tenant was noisy, very difficult and attracted troubled friends. It ended up costing me a lot more time to deal with this tenant and a few broken things exceeded the price of a month of vacancy. Learn to choose your tenants carefully, it only takes one to kill your real estate investment journey.
Here are proven and tested ways to screen your tenants and sleep better at night:
Schedule cluster showings and/or back to back showings to create a sense of scarcity and urgency (and saves you time).
Hustle, hustle, hustle by marketing your unit on popular sites like Kijji, craigslist, grapevine to increase your reach out to the ideal tenant.
Pay for rental advertisements to get noticed.
Create a You tube video for your unit to standout from other boring rental ads.
Capture and upload nice bright pictures of your unit to attract potential tenants.
Write rental ads that resonate and attract more of your ideal tenant.
Check out local tenant boards to learn the rules.
Build and foster relationships with your tenants.
Avoid renting out a property during November and December.
Market your rental unit using social media sites.
Build tenant application forms using google forms.
Meet the pets before committing to a lease.
If the local laws allow it, collect a damage deposit.
Do not hand out the keys until you have proof of utility hook ups to avoid having to chasing after the tenant for the bills.
Have a well-written comprehensive lease agreement, it is your insurance policy against the rental’s board.
Take your time to qualify any potential tenant, since it can take months to evict a problem tenant so avoid it!
Pre-screen tenants through email/phone before showing the unit to them.
Call all tenant references (especially the second last landlord to get an honest reference).
Ask for tenant’s proof of income including a paystub.
Never accept an application that is missing information like references and a poor credit score.
Assess whether the potential tenant can afford rent, a good rule of thumb is 30% of their monthly income.
Conduct your credit checks using services like www.tenantverification.ca
Leverage the internet and use google to research your tenants.
Conduct social media checks using resources like www.pipl.com.
Verify employment by calling the employer and checking Linkedin.
Learn all the local tenancy rules and bylaws.
Be competitive with current market rent (rentometer.com).
Never rent to a tenant that you have never met (or your property manager has never met).
4) No Plan B:
I made the mistake of not thinking of the exit strategy carefully when I purchased my first two real estate investment properties. Now I’m stuck with a house that has a low 6 foot ceiling in the basement and another house that only has two bedrooms. Houses are illiquid – learn some creative exit strategies to protect your money pot.
Don’t be victim to one exit strategy – be smart and start with these 16 tips in building your bomb proof exit strategy:
Be prepared to have more than one exit strategy other than traditional selling such as converting it to a Rent to Own property.
Identify + complete cosmetic renovations that can give your properties an instant boost for resale – ex: new paint and hardware.
Develop rules to avoid buying houses that are hard to sell. Keep your eye on the ball. Ex of common rules include: never buy a property with an oil tank, never buy a property with low ceilings and so on.
Always buy a property under market. Your make the money when you buy and when you sell.
Identify other uses for the property that could target developers (check zoning for potential uses for the land).
Consider adding secondary suite to boost cash and add to resale value.
Find creative ways to boost cash flow such as renting out the shed, garage, storage etc. so you have more contingency money.
Build a cash contingency fund equivalent to two months of expenses for each property for financial security.
Add a life line to your property by having a secured line of credit (e.g. a home equity line of credit) for unexpected expenses.
Check into government incentives if you are planning for major renovations. There are many programs out that offset property taxes depending on the renovations and/or return portions of your HST.
Convert to a rent to own property as a strategy for selling the home and boosting monthly rental cash flow.
Partner up with a joint venture partner to get a boost in cash in exchange for some equity. You also start sharing all expenses and profits with the other partner.
Convert an old basement into a rental suite or add another suite to your rental property (if allowed) to attract more sellers.
Convert the rental property to a vacation property or bed & breakfast to sell it as a business.
Refinance the property to a longer amortization and/or lower interest rate to boost monthly rental cash flow and hold the property until the market turns around.
Establish great relationships with your tenants and treat them well so that you increase the likelihood of them treating your place well , staying longer, and possibly buying it too.
Take the time to improve on one of these themes to help build a solid foundation. Doing this will fast track your progress and confidence as a real estate investor.
Real estate investing is not for the faint of heart, but it is a fantastic way to build wealth. I have no regrets doing it.
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