For many real estate agents, there’s a desire to move beyond the transactional and build a real estate business focused on long-term financial growth and stability. By investing in real estate, either in your local market or in desirable markets around the country, you can create a portfolio of properties that grow in value through improvements and appreciation while providing ongoing cash flow month after month.
Be sure to check with your broker to determine what rules you should follow in order to avoid a conflict of interest when identifying and negotiating for your investment properties. Remember that your investment activities should never interfere with or undermine your fiduciary duty to your clients.
Put Together Your Professional Network
Successful real estate investors are adept at identifying colleagues and professional service providers who can help them create and manage their investment portfolios. Before your first purchase, begin by gathering your team together—it will cost far more to undo bad ownership decisions after the fact than to plan properly ahead of time.
Real Estate Attorney
Your real estate attorney will be an invaluable resource to help you put together the documents and deals you need, including purchase agreements, rental agreements, and service provider agreements. In addition, your attorney will give you advice on the structure of legal entities, including LLCs or S-Corps that you may want to use for the purchase and ownership of your properties.
CPA or Financial Planner
For everything from tax planning to budgeting to carrying costs and cash flow, your financial advisor will be an essential resource, helping you to correctly crunch numbers and determine the difference between a good deal and a great one. Talk to your accountant about the record-keeping you’ll need to do and the documents you’ll need to provide on a regular basis in order to ensure that everything is properly recorded.
Contractor or Subcontractors
Depending on the level of hands-on involvement you want to have in your business, you may want to work with a general contractor or with several reliable subcontractors on the updates, upgrades, and repairs you want to undertake on each property. You’ll need to balance the quality of the work with the availability of the craftspeople since you’ll want service providers who are both well-qualified and readily available in order to reduce wait-time and carrying costs.
For your first couple of properties, be open to handling management tasks—such as marketing the properties and taking late-night phone calls when something goes wrong—on your own. Eventually, consider hiring a property manager to run the day-to-day operations and stay on top of long-term repair and maintenance needs. Effective property management can help increase tenant satisfaction and retention, saving you money on marketing, onboarding, and vacant property costs.
If at all possible, look for a mentor who is already working in real estate investment. Whether you find someone local to shadow or connect with someone remotely, it’s important to find a person who has been where you are and can provide a blueprint for you to follow. If you don’t have a local mentor to call on, start by reading books or blogs or identify a YouTuber or podcaster who offers solid advice to get you started.
Determine Your Investment Strategy
You may want to narrow your focus to a specific investment strategy or identify criteria that lend themselves to various strategies. Here are some of the most popular ways to invest in real estate.
In order to take advantage of affordable lending options available to homeowners, you may want to consider house hacking. This strategy allows you to purchase your primary residence—preferably a duplex, triplex, quad, or a home with a carriage house or guest house—and finance the purchase, in whole or in part, through rental payments from the other unit or units. If you just want to dip a toe into real estate investing, this is a great way to finance the payoff of your home with little to no out-of-pocket expenses.
House flipping is a short-term investment project where you add value to a home, either through improvements or additions, and sell it for a profit. You’ll need a contractor who can work quickly and reliably, along with the ability to purchase properties well below market value, since much of the profitability of these projects comes from buying inexpensively then limiting carrying costs through quick turnarounds and a fast, profitable sale.
Buy and Hold
If you’d like to build a portfolio of properties to hold long-term, there are a couple ways to monetize your investments.
Long-term rentals are generally rented out for periods of no less than a year at a time and serve as the primary residence for your tenants. Look for long-term rental opportunities in college towns, near military bases, or near major employment hubs.
Short-term rentals may be rented out for as little as one night in the case of Airbnb rentals or for several months in the case of seasonal rentals. Look for short-term rental opportunities in resort areas or near major attractions like theme parks and vacation hotspots.
Start Looking for Deals
Depending on the market, great deals can be found in a variety of ways, including:
- Identifying MLS opportunities: look for fixer-uppers and properties that have been on the MLS for months or even years or for FSBOs and expired listings.
- Identifying pre-market properties: Depend on your professional network to find property owners who may be interested in selling a property without the hassle of a traditional preparation and marketing process.
- Driving for dollars: Keep an eye out for properties that are poorly tended or appear to be abandoned to find owners who may be open to a sale.
- Direct mail: Send letters of inquiry to absentee property owners or investors who may be looking to monetize some or all of their existing properties.
- Working with wholesalers: Connect with wholesalers who identify potential sellers, and then assign the contract to investors.
- Short sales, foreclosures, and auctions: Pay attention to opportunities to purchase at auction or direct from distressed homeowners or lenders.
- Online investment portals: Some online portals feature investment opportunities in markets all over the country, along with information to help you crunch the relevant numbers.
Reevaluate as Needed
As you grow your portfolio, check the property and market conditions on an ongoing basis to determine whether you want to make changes to your investment holdings. This will help you to ensure that your properties stay filled with well-qualified renters and that you are optimizing the cash flow and profit potential for the properties.