New real estate investors often experience the same problems, but locating solutions to those problems beforehand will make the process more lucrative
For those new to real estate investing, recognizing certain common problems and the solutions available will help you succeed in the long run. RCN Capital offers some great options in a recent blog post.
Finding properties
Finding properties can be one of the most difficult parts of getting started. RCN recommends looking for local wholesalers and good real estate agents in your market. For experienced investors, other options and relationships might be able to get properties more directly but individuals new to the market may not have those connections. Attending local investment club meetings to connect with local wholesalers is a great option. Finding investment clubs such as REIA, the Real Estate Investment Association, allows those people curious about investment opportunities to find local groups by address.
Another option is a simple Google search.
“The best way to get started is your local area, using county or metro area, and add “REIA” to the end of it,” said RCN. For example, in Denver, you might want to use “Denver REIA” for your search. Larger metro areas may have multiple groups, so take note on which one might be best for your market or area. Perhaps try them all out to see which one is the best fit for you. Meetup.com and Biggerpockets.com are other options to meeting more groups outside REIA.
Once in a group, advertise what you can provide and explain what you need, suggests RCN. The goal is to meet wholesalers and agents when they are looking to expand faster than their customers can buy. Avoid approaching and saying, “I am a new investor looking for properties.”
“The key difference here is you want to talk to people and explain what you do have, or what you can do,” said RCN. “Everything you do have and everything you can bring to the deal should be stated. Then you make your ask.”
Offering a timeline will also be helpful and show the property provider how serious you are. Be ready with funds, labor options, and contractors in place so agents and wholesalers are able to sell properties quickly rather than wait around for investors to finalize the other pieces of the deal.
What if you’re short on cash?
Most areas have lenders who are willing to do at least 75% of the purchase and renovation costs. Some markets will go above this to 85-90% of the purchase and 100% of the renovation, said RCN. You will need between 10-25% down if you are experienced or 20-25% if you are new.
If you don’t have the cash, you can look into short-term loans, bringing in a partner, or saving your money. Short-term loans come with typically high-closing costs and interest rates, eliminating part of your profit margin. “Many lenders are also not willing to accept them as part of the funds needed to close, so make sure you double-check with the lender ahead of time,” said RCN.
Many investors partner on at least a few deals to split costs. This helps to lower the barrier to entry and helps with the management of the property.
“Make sure to partner with someone you know and trust,” said RCN. Be sure to have a contract written up as well to protect you both. Saving money may be a slow process but it is still a great option if the alternatives don’t seem like a good fit at the time.
Do you need a contractor?
Finding a good contractor is often the hardest part, especially in booming markets. Renovations require you or a team to do the work. Tell everyone you know you are looking for a contractor and check on Craigslist and Angie’s List as well to get solid recommendations. From there, be sure to vet your contractors. 50% of contractors are able to perform better than average while the other half are performing below average, according to RCN. Ask to review previous properties worked on, other jobs completed, current projects, licenses, and insurance. Unlicensed or uninsured contractors may save you money, but they may not be dependable or do the work well. Don’t risk it
Be sure to ask if they work by themselves or with a team, and when they can start your project? This can dictate your potential profit so make sure they can start soon or wait to purchase a property until closer to their next opening. Also, ask if they are working on other projects? Though other projects may not be inherently a bad thing, they may be challenging if they interfere with your project. In other words, make sure they are able to do the work.
