How to Become a Real Estate Investor: First Steps

Some invest in real estate to build a large portfolio as their prime profession. Others limit their holdings to a few properties to earn extra funds to pay for a vacation or simply gain a steady stream of additional income.

 

How to Become a Real Estate Investor

Allison Bethell, Real Estate Investing Analyst and Writer

The latter was the impetus for entrepreneur Allison Bethell, now 34 and a real estate investing writer and analyst with Fitsmallbusiness. She made her first purchase only four months after she graduated college. “I knew I didn’t want to work a 9-5 job,” she recalls. However, she wasn’t ready to be a full-time real estate investor, either. It would be a side gig until she had a large enough income stream.

 

She took money that she had saved from working during college and summers, secured a line of credit from a local bank from a condo she had recently purchased as a primary residence and bought a nine-unit apartment building in Philadelphia, near two major universities to satisfy the adage, location, location, location.

 

Then, she did what a smart investor dipping their toes into the industry does. Even though she hadn’t yet formalized a business plan, she reduced the uncertainty a bit by buying a property that had a history of strong rentals. It also wasn’t in need of tremendous renovation—just some small tweaks, plus freshening, and junk removal.

 

Mastering Lessons

 

How to Become a Real Estate InvestorIn the process, she learned lesson No. 1: There are almost always surprises. In this case, it was that the zoning for a commercial use had been done incorrectly. She hired an attorney and went to court to have the site rezoned. With additional changes made to the zoning, she spent some of her future profits and also lost some time. But with the new zoning in hand and existing renters finishing out their leases, she was ready for her new clientele—mostly young professionals and students who liked the building and the location since it was near a park, transportation, universities, shopping, and restaurants.

 

Once all the units were leased, she felt secure enough to go for property No. 2, this time a foreclosure—a duplex that needed to be renovated. It called for new kitchen and bathroom renovations, new flooring and lights throughout. However, it was in an up-and-coming neighborhood where a shopping complex had just opened. She continued at her management training car rental job for two years while she also worked to earn her real estate license. Once she was licensed and also a broker, she quit the management training job and focused on investing in real estate.

 

Today, Bethell owns properties in Florida and Pennsylvania. She lives in Miami, Fla., where she and her husband relocated two years ago, in part for its good real estate investment possibilities. And she hunts for options in Detroit and Ohio where she thinks the markets offer a strong upside.

 

13 Other lessons she’s mastered:

1) Be honest with yourself if you have the right mindset for this profession. “I believe that it takes a certain amount of grit, determination, and perseverance to be a successful real estate investor. You must be creative and see a way when it looks like none is available. You also have to be self-motivated because you only get paid when a deal closes,” she says.

 

2) Know the markets well where you invest and how they evolve. Also, understand what’s happening in the overall economy. Bethell has recognized how much harder it’s become to find good investments due to higher interest rates. She has also come to see that in Miami, homes under $400,000 are a better investment than those priced higher since that market has become more saturated.

 

3) Get rid of properties when they are difficult to manage and not producing enough cash flow, if you want to use the funds to diversify or if the neighborhood is changing and the results don’t appeal. Bethell recently sold a single-family house in Pennsylvania because she wanted to free up money for another investment.

 

4) Keep learning. Though she hasn’t had a mentor or coach, she recommends having one when starting out and as you progress up the ladder. You may very well need several coaches. “I just dove in, but it definitely would have been helpful,” she says. She has continued to attend seminars and take courses, though she steers clear of those that make big promises with quick rewards. (Learnfromgreen offers many good courses.) And she suggests reading real estate books such as Rich Dad Poor Dad, The Art of the Deal and The Millionaire Real Estate Agent.

 

5) Stay in touch with those you meet along the way. “I recommend saving all of your contacts from buying, rehabbing, renting, and selling houses. Reach out to them when needed,” she says. And always be humble about your success if you are.

 

 

6) Whatever you think your budget will be for any rehab, add in 50 percent more for the just in case surprises—rotted subfloors—or changes—better appliances, for example.

 

7) Get recommendations for contractors that you check out thoroughly. “So much can go wrong; some neglect pulling essential permits,” she says.

 

8) Diversify your investments so you don’t put all your eggs in one basket. You may decide to go further afield geographically or into a different type of real estate—commercial such as a night club or restaurant. Find mentors who have taken those steps.

 

 

 

 

9) Never buy in an area where you might not want to live or can’t envision others residing, such as places where you might be worried about being robbed or parking your car.

 

10) Develop a business plan early on and keep tweaking it as you meet goals and set new ones. Perhaps, you are ready to buy more expensive real estate or investments that require less repair. Both may demand that you hold on to them longer to make a profit.

 

11) Know when you need to hire someone else to help. At first, Bethell self-managed all her investments but as she bought more sites and several farther away she knew she needed help from full-time property managers.

 

12) Avoid expecting real life to mimic TV reality shows. If you’re a landlord, you may get calls in the middle of the night about faulty plumbing or a leaky roof that need to be resolved immediately.

 

 

13) Stay up to date on technology, which has become more important in this industry, too. Your clients will be staying updated and you want to meet their expectations.

 

Her final takeaway: Always be realistic about what you want out of what you’re doing with the understanding your goals may change. Bethell has found joy in each purchase, renovation and the potential earning power. But she is also passionate about writing and sharing her real estate knowledge with others. That’s why she joined Fitsmallbusiness eight months ago where she is a remote real estate investing writer.

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