November 6, 2020 • 8 mins
There is a lot of real estate. Like, a whole lot. Practically everything you see is either real estate, or is on or in real estate. If you’re driving down the road, running in a park, or cleaning your garage as you listen to this podcast, chances are you are surrounded by real estate. When you start to see everything as real estate, you then start to look at that real estate from an investment perspective.
There are a lot of ways to invest in real estate, as shown with the different guests we have here on the podcast. From buy and hold single-family investing, to house hacking small multifamily, to apartment syndication, there are different niches and investment strategies.
Starting out, most people are successful by being as narrow focused as possible, meaning they select one real estate niche and focus solely on it. If you don’t focus on one niche, you’ll find yourself looking at raw land in South Texas, Condo’s in San Diego, and new development multifamily in Virginia. Which brings us to the next point – the market. Just as it’s important to narrow down your niche, it’s also equally, if not more important, to narrow down on a few markets.
These two criteria – niche and market – will help you develop an investing strategy.
So, by now you’ve committed considerable time and resources in your own education. Now it’s time to start finding deals.
Let’s look a how to qualify a deal in three steps.
Setting your investment criteria. Now that you have a niche and market, you can begin to develop your investment criteria even further. Let’s take multifamily apartments in Texas and Oklahoma for example. This is our niche and markets. This is still relatively broad, and can be defined more. We need to consider things like:
Size of the property
Markets and submarkets
Property type
Property age
How you find and buy the deal (direct to owner or through brokers)
Returns
Once these criteria are defined, we now have a specific set of criteria that we can filter all deals through. If the property doesn’t fit these criteria, then think long and hard about pursuing it. Just because something looks like a deal, doesn’t mean it’s a deal for you.
Underwrite the deal. Once you have a deal that fits your investment criteria, it’s time to analyze the numbers further. This process is called underwriting and is an iterative process. You’ll look at the property’s past performance, project it’s future performance, and model out your business plan. During you’re underwriting you’ll be making assumptions and modelling different scenarios. Having some sort of underwriting tool is a must. Most people use excel or google sheets spreadsheets. You can build you own, or find one from someone who has already built one. Either way, an underwriting tool is a must.
Due Diligence. Due Diligence is the process of confirming all the details of the deal, from your underwriting assumptions to property inspections and anything specific to the deal you’re qualifying. During due diligence you’ll dive into all the minute details of the deal, making sure once last time that you understand everything there is to know about the deal. You’ll confirm things like:
Rent comparisons
Sales comparisons
Renovation Scopes or Work
Property inspections
Lease audits
Expense details
Quotes from vendors and contractors
Much more
From those early days and all that investment into yourself to the final phases of due diligence on your investment deal, you have gone from 0 to real estate investor! Congrats! Crossing the finish line and closing the deal is a huge milestone. It’s the end of one chapter and the start of the next! Do this repeatedly and consistently and you’ll be well on your way to building wealth and achieving financial freedom. This is a journey, so enjoy the process. It won’t happen overnight, and it will take a lot of work and effort. But remember, if it were easy then everyone would do it and the rewards wouldn’t be quite as nice.
There are a lot of ways to invest in real estate, as shown with the different guests we have here on the podcast. From buy and hold single-family investing, to house hacking small multifamily, to apartment syndication, there are different niches and investment strategies.
Starting out, most people are successful by being as narrow focused as possible, meaning they select one real estate niche and focus solely on it. If you don’t focus on one niche, you’ll find yourself looking at raw land in South Texas, Condo’s in San Diego, and new development multifamily in Virginia. Which brings us to the next point – the market. Just as it’s important to narrow down your niche, it’s also equally, if not more important, to narrow down on a few markets.
These two criteria – niche and market – will help you develop an investing strategy.
So, by now you’ve committed considerable time and resources in your own education. Now it’s time to start finding deals.
Let’s look a how to qualify a deal in three steps.
Setting your investment criteria. Now that you have a niche and market, you can begin to develop your investment criteria even further. Let’s take multifamily apartments in Texas and Oklahoma for example. This is our niche and markets. This is still relatively broad, and can be defined more. We need to consider things like:
Size of the property
Markets and submarkets
Property type
Property age
How you find and buy the deal (direct to owner or through brokers)
Returns
Once these criteria are defined, we now have a specific set of criteria that we can filter all deals through. If the property doesn’t fit these criteria, then think long and hard about pursuing it. Just because something looks like a deal, doesn’t mean it’s a deal for you.
Underwrite the deal. Once you have a deal that fits your investment criteria, it’s time to analyze the numbers further. This process is called underwriting and is an iterative process. You’ll look at the property’s past performance, project it’s future performance, and model out your business plan. During you’re underwriting you’ll be making assumptions and modelling different scenarios. Having some sort of underwriting tool is a must. Most people use excel or google sheets spreadsheets. You can build you own, or find one from someone who has already built one. Either way, an underwriting tool is a must.
Due Diligence. Due Diligence is the process of confirming all the details of the deal, from your underwriting assumptions to property inspections and anything specific to the deal you’re qualifying. During due diligence you’ll dive into all the minute details of the deal, making sure once last time that you understand everything there is to know about the deal. You’ll confirm things like:
Rent comparisons
Sales comparisons
Renovation Scopes or Work
Property inspections
Lease audits
Expense details
Quotes from vendors and contractors
Much more
From those early days and all that investment into yourself to the final phases of due diligence on your investment deal, you have gone from 0 to real estate investor! Congrats! Crossing the finish line and closing the deal is a huge milestone. It’s the end of one chapter and the start of the next! Do this repeatedly and consistently and you’ll be well on your way to building wealth and achieving financial freedom. This is a journey, so enjoy the process. It won’t happen overnight, and it will take a lot of work and effort. But remember, if it were easy then everyone would do it and the rewards wouldn’t be quite as nice.
Mark as Played
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