There has always been an opportunity for real estate investments; however, we are witnessing an unprecedented time in the real estate marketplace. Foreclosures are at an all-time high with no signs of slowing. Institutional lending sources have evaporated and liquidity for security-backed mortgages has likewise disappeared. For a homeowner, these are not the best of times. For investors, the current market represents a time of golden opportunity, as we are buying properties at steep discounts to rehab and flip, or hold for long-term rentals. There is just one catch, you have to know what you are doing or it will not matter how great the opportunity is.
Below are some important steps you need to take to succeed in your real estate investment;
Step 1: Knowing Your Financial Situation And How It Applies
Understanding your financial situation is critical. Proceeding in a way that is realistic for your budget and setting aside proper reserves can keep you from getting overextended and in trouble.
• How much capital should you allocate to one project?
• How much reserve capital should you allocate?
• How many projects should you undertake at one time?
• Are you going to be using all equity or partial capital and debt?
• If you plan to use both your capital and debt, how much should you put down in
capital and how much should you borrow?
• At what rates should you borrow?
• Where do you go to borrow money for a real estate investment?
Step 2: Assembling A Team
Even with the most experienced captain at the helm, you cannot sail a ship without a crew, the same goes for real estate investments. Real estate investing takes a team and to be successful you need a good one. The good news is that most of the team can be assembled and kept on a commission or project only basis. You are going to need the following players on your team:
• Real Estate Brokers / Sales People for selling the property. Often, the realtor you use on a sale will differ than the one you used to buy the property due to their specific focus in the real estate field. One may deal primarily with banks and foreclosures and the other should focus on end home buyers.
• Real Estate Brokers for Renting the property
• Real Estate Appraisers
• Real Estate Surveyors
• Title Companies
• Insurance Agents
• Structural Engineers
• Construction Professionals
• Construction Management Professionals
• Mortgage Professionals for end buyers
• Mortgage Professionals for your investment financing
• Environmental Consultants
Step 3: Choosing An Investment
A lot of thought must be put into which type of investment you want to get involved in. Do you want a short term or long term investment? Do you want to manage construction? Do you want to be a landlord? Are you interested in commercial or residential? Choosing the type of project to invest in is very important and there are many types of projects to choose from each posing their own set of challenges and unique set of obstacles all of which if done correctly, can be very profitable. Here are some standard issues you must determine regardless of which project type you choose:
• How much is the project worth now or as-is and how much will it be worth when completed or ARV (as repaired Value)?
• How much will it cost to complete the project?
• How long will it take to complete the project?
• How long will it take to sell or rent?
• How much will it cost to sell or rent?
• Are there any unexpected costs due to a possible town point of sale inspection or building code violations?
• Are you going to need any third party reports such as architectural plans, EPA reports or structural reports?
• Does the property have environmental issues?
Step 4: Making An Offer And Getting Started
Once you have chosen a project, it’s time to make an offer and get started. Most of the
time you will make dozens of offers before you get one accepted that fits your criteria.
Don’t get frustrated and stay with it, this is a part of the business. If there is one thing
that many years of experience will teach you it is that there is always another deal right
around the corner, so don’t get pressured into the wrong deal because it’s in front of
you. Making your offer included working closely with your purchasing Realtor and now
once you have an accepted offer, you will need to follow these steps to get to a closing
and prepare for construction.
• Contact your lawyer to review the contract prior to fully executing it and in the case of most commercial deals your lawyer should be involved with the contract from the beginning.
• Lawyer should order title and communicate with seller’s attorney to schedule a closing.
• Prepare your contractors to begin construction
• Draft a construction contract including a scope of work and a time frame for the work to be completed
• Manage and meet all town required inspections
• Finalize any necessary loan needs and get final approval
• Analyze all necessary due diligence on the subject property
• Order any necessary third party reports such as EPA phase 1, 2, or 3, appraisals surveys or structural engineering.
• Close the deal
Step 5: Post Closing Construction Begins
Now that you are the official owner of a property things really get busy. Throughout the entire process of your real estate investment it is important to be diligent, however when you are in the process of construction and trying to turn a property around it is most critical. Here are some of the main issues to make sure that you follow carefully;
• Inspect construction regularly to make sure that your contractor is performing as agreed
• Make sure that you have the exact scope prior to construction begins ( changes after are very costly)
• Make sure to follow all local building codes and pull necessary permits (getting caught without permits even for little things can cause very long delays and be very costly with village fines)
• Assemble your marketing team and prepare them for implementation
Step 6: Post Construction Marketing Begins
After the project is constructed you need to implement your marketing whether it is for sale or lease. As with all the phases of your real estate investment this is a very critical step and can make or break your investment. It is important that you have the appropriate team in place and effectively manage the process. Here are several of the important steps to remember:
• Have a solid plan that has been thoroughly researched.
• Have your team ready to handle the process
• Be prepared to list the property on the appropriate listing service whether it is the MLS, Costar, LoopNet or any combination thereof
• Make sure that the property stays in showable condition. For example; lawns need to me manicured and properties need to be cleaned regularly.
• Make sure that the listing agents upload accurate information into whatever listing services that you choose to use.
• Be available for showings or make sure that your team is always available.
• Understand your negotiating position ahead of time and be ready to negotiate properly
• Understand and be prepared to execute a sales contract or a lease agreement.
• Understand your credit guidelines for any prospective tenant.
• Have your management team ready to manage your investment
Step 7: Management Post Marketing /Construction
Management is the key to long term success. Once all the construction is complete and
the property has been properly marketed, you are in a good position. It is important to
keep your investment cash flowing. Here are several steps to keep your investment
producing a positive cash flow:
• Get yourself some management software that is compatible with your accounting software and learn how to use both.
• If you are using an outside management company make sure they are competent.
• Make sure you use competent third party contractors such as landscaping and cleaning.
• Be sure to utilize security and fire monitoring systems and companies and make sure they have the correct contact information.
• Have your billing system in place and make sure that you are on top of it. (This is where good software really helps.)
• Have a collection agency and an eviction lawyer ready to move quickly in the event of a default. (No one likes them, but they do happen to everyone.)
• Minimize all unnecessary expenses as your value may very well be determined by the NOI or Net Operating Income, especially if your project type is commercial.
• Fight to reduce the real estate taxes as often as you can.
Step 8: The Sales Closing
You are almost there and now you need to get to the closing. This step should ideally be a fun step that leads to a big check for you to take to the bank. Here are a few steps to make that happen:
• Make sure that you are prompt and negotiable with any offers that come in.
• Make sure that your real estate agent is prompt with the potential buyer.
• Make sure that lawyer is also available and is as involved as needed
• Make sure that you have the necessary surveys and other reports ready to deliver for the buyers due diligence
• Make sure that the property is ready and easy to show.
• Order any necessary local township point of sale inspections
• Order your final water bill or water certification
• Cancel your utilities
• Schedule your closing and take your money to the bank.
You are now a successful real estate investor and have a deal behind you to prove it. Now all you need to do is repeat the process as often as you can.
Real estate investments can be extremely lucrative and can be one of the safest investments if done correctly, however there is an expensive learning curve for most investors. Keep in mind there are a lot of moving parts to even the smallest real estate transaction and without a good team and the proper implementation you can and will lose money. Simply put, it just takes experience to get everything and everyone together and to fully understand all the variables that lead to a successful investment or project. Nothing will gain experience faster than trial and error. It is impossible to know what construction costs should be until you run through a project several times. It is also very difficult to know whether you have a competent contractor without having dealt with him before or at least knowing what to look for.
Below we have listed several problematic situations with some of the key personnel that
you should be aware of, all of which are avoidable with experience;
Realtors: While real estate professionals are an important part of any project, it is
important to know that there are some very qualified realtors out there, but there are
also some very incompetent ones as well. The wrong realtor can cause
problems on several levels;
1. If you are relying on your realtor for your “as is” and “as complete or ARV” values
and he or she is unfamiliar with the area or its trend, you can grossly overestimate what the property will be worth when you are complete. This is a disastrous situation to be in and is completely avoidable with the right professional.
2. If your selling realtor is used to working for investor buyers you could be setting
yourself up for failure. Selling a home is a hard job and it takes a dedicated and
knowledgeable person to accomplish it. It takes a long time for sales people to
build a clientele and to work their way into an area. Sometimes even a good
realtor can be the wrong choice just because of the area or type of property you
3. If you are figuring your interest reserves based solely on the word of an over
eager sales person, you may find yourself without enough capital to pay your
mortgage when it takes longer than expected to sell or lease a property. This
may mean foreclosure and the loss of all your investment and it is avoidable.
4. A realtor who is advising on your construction finishes or scope of work may very
well advise that you over construct or to install very expensive finishes not in your
original budget therefore making his job easier at your expense. It is easy to sell
a Mercedes at a Yugo price, but it is not usually necessary. The opinion of the
selling realtor or realtors is important, because they do have a feel for the market
that you may not completely have, but they do not have the final word and you
need to understand your market so you do not fall into this trap. Once again, this is completely avoidable with experience.
5. A realtor who is overestimating an end value will undoubtedly advise you to pay
more than it is worth in the very beginning on the purchase. This is also
Contractors: Another very important and very dangerous position. Contractors can
make your project go very smoothly or absolutely destroy it. Having the right
construction professionals is absolutely imperative to your success. Here are some
situations to watch out for.
1. Right from the start a contractor can ruin a project. Be very careful when giving
any contractor money for materials. If they are behind on another job your money might very well end up financing someone else’s project.
2. A contractor might take on more work than they can realistically handle and if you fall into that scenario it is very difficult, if not impossible to stay on budget and especially on schedule.
3. A Contractor may not be capable of the work that they sign on to perform. This is a very nasty situation and can be very costly.
4. Contractor may just plain and simply walk off the job and leave you hanging without the money that you paid them or a completed job.
5. Contractor may do a subpar job and demand money anyway. This is an ugly situation and can easily end in a long drawn out court battle. Meanwhile, your property could have a mechanics lien during the battle causing your project to come to a screeching halt.
6. Contractors are typically blue collar workers and come from all different lifestyles, the list of problems to avoid goes on and on.
Third Parties; Appraisers, Lawyers, Mortgage Professionals, Structural Engineers,
Surveyors, Title Companies, Insurance Agents etc.. These are all important positions
and very important decisions are made because of their advice and recommendation.
Reports that these experts give you need to be reliable, otherwise you may spend more money than necessary. Fixing a cracked concrete foundation or wall repair may be necessary due to a false Structural Report or you may overpay on the on the purchase of a property due to an incompetent Appraisal Report. The scenarios are endless, but the outcome is all the same, loss of partial or all invested capital.
Solutions: Sometimes Active Investing is not the answer and Passive Investing is.
In most cases it is much safer for investors to work with an experienced real estate
investment firm who has all the tested connections, infrastructure and team in place
already. Experienced Firms can take the majority of risk out of any investment because they have already taken the necessary steps to avoid standard pitfalls through actual trial and error, not theory alone.
Market Makers Corporation and its management team have over 150 years of combined management experience in all facets of the real estate business and have collectively completed over a thousand projects. Market Makers is uniquely positioned to assist individuals in their real estate investments and can offer several different investment opportunities that may not be realistic for an individual to perform on their own.
So, if active investing in real estate is not the answer, you may want to work with a company like Market Makers Corporation. These companies are strategically setup to work with investors in a way that will allow you to passively invest in the lucrative real estate market, realize tremendous growth in your portfolio while still protecting your estate just as an active investor would. Market Makers affords investors the opportunity to invest in high-yielding, passive vehicles backed by real estate as well as the support and integrity of professionals dedicated to keeping your money as safe as possible. Companies like Market Makers can do this for investors because they generate and review hundreds projects and carefully scrutinize them looking for the safest and most profitable deals. In other words, it is the business they are in and what they know. Leveraging investor funds and real estate expertise can be a powerful combination that will outperform traditional investments any day.
Real Estate Investing is not for everyone, and before any investor tries it, he or she must have a complete understanding of what they are getting into, the risks involved, whether it is better to hand select professionals or utilize a full service company and play a passive role. If you are interested in finding out more about passive real estate investments through Market Makers Corporation you can contact:
Market Makers Corp.
800 East Northwest Highway
Mt Prospect, IL 60048
Direct: (312) 300-7887
Fax: (312) 300-7889
Email: [email protected]