Grant McDonald is vice president of corporate development at 14th Street Capital, America’s premier hard money lenders for real estate investors. He has more than three decades of experience in the real estate industry and more than a decade in the finance space.
9 Skills Real Estate Investors Need in a Hot Market
It’s not just about learning how to capitalize on housing trends. Your clients need to know how to build the right professional network, too.
April 4, 2022
Investing in real estate can be lucrative for your clients, but pursuing such an endeavor alone without support can be difficult. Investors need not only market savvy but also the right partners, such as property managers, real estate wholesalers, or joint venture capitalists. A degree isn’t necessary to be a successful investor, but most share certain characteristics. Here are some action items that all successful real estate investors must pay attention to.
- Make a strategy. In order to establish and attain short- and long-term goals, property investors must approach their operations as businesspeople. A business strategy is an excellent concept to develop because it enables investors to see the big picture and keeps them focused on the most important goals rather than minor setbacks. Real estate investing is difficult and time-consuming, and a well-planned strategy may help investors stay organized and on track. Anticipated cash outflows and inflows through rentals, how many properties to buy, when to renovate or update properties, changing demographics, and anything else that could affect your investment over time would all be included in the plan.
- Create a niche. For investors to succeed, they must gain a thorough grasp of the niche market they’re interested in. Taking the time to gain this level of understanding is essential for long-term success. There are plenty of niches to choose from, such as low-income multiunit housing, high-end residential, or rural farm rehabilitation. Once they’ve identified a niche that plays to their strengths, investors must double down to maximize further opportunities.
- Connect with a certified public accountant. Taxes account for a large amount of a real estate investor’s annual expenses. Understanding current tax regulations can be difficult and time-consuming, diverting attention away from the task at hand. Savvy real estate investors should hire a trained, respected accountant to handle the business’s books. When compared to the savings that a professional can bring to the company, the cost of hiring an accountant can be minor.
- Understand the market. Effective real estate investors need to stay on top of marketplace trends, such as changes in consumer purchasing patterns, the unemployment rate, and mortgage rates. This can help investors assess the impact of market changes on their business plan and prepare for the future. With enough practice and consistency, they can predict when trends will alter and new opportunities will arise.
- Focus on referrals. Because investors will use referrals to generate a significant amount of their revenue, it’s vital that they treat others with respect. This includes business partners, clients, associates, tenants, and anybody else with whom the investor does business. Effective property investors pay attention to the smallest details, listen to and respond to client complaints and difficulties, and project their organization’s favorable and professional image. This builds the type of reputation that attracts other investors to collaborate with them.
- Recognize the risks of investment. “Material costs shot up fourfold, came down, and now are going up again,” says Joshua Blackburn of Evolving Home, a plumbing and drywall information site. “Going into the deal, prepare your numbers off an inflated market, and have a plan B. If your goal is to flip, what will your repair budget be with higher material and labor costs? If interest rates go up and you don’t find a buyer for your property, can you do a cash-out refi and rent out the property while maintaining cash flow?” Prudent real estate investors know the risks—not just in terms of real estate transactions but also legal repercussions—and adjust their business practices to mitigate those risks.
- Stay updated on regulations. Investors should know the rules, terminology, regulations, and trends that create the backbone of their business. Those who fall behind on this knowledge risk both losing momentum in their businesses and facing legal ramifications if regulations are overlooked or broken. Keep up to date on real estate, tax, and financing rules and regulations that may have an impact on the investment company directly or indirectly.
- Seek assistance from other pros. It’s difficult to learn the real estate investing business alone. A professional network can provide essential support and possibilities to both new and experienced investors. Look to mentors, knowledgeable clients, business partners, or members of a nonprofit organization to challenge you and encourage your development. Since learning the ropes of real estate investing depends in large part on experience, savvy investors understand the importance of networking.
- Identify the right financing source. Knowing the right funding source for specific investment projects is key, especially with several interest rate hikes expected this year. Understanding the distinction between conventional loans, hard money loans, and home equity loans can make all the difference to your bottom line.
Despite the advertising that portrays real estate investing as a simple path to wealth, it’s a challenging business that requires knowledge, planning, and focus. Furthermore, because an investment company is built on people, investors will benefit in the long run if they work with integrity and treat associates and clients with respect. Though making immediate money is simple, developing a long-term investment strategy requires skill, perseverance, and the nine habits listed above.