7 STEPS To Begin Your JOURNEY As A REAL-ESTATE INVESTOR

Want to begin your journey of real-estate investor with immediate effect?

Before, that you need to first ask yourslef,

WHY INVEST ?

As an individual, I have always made a conscious effort to save money by reducing unnecessary investments either over expensive products or things which I covet but can easily live without them.

But, one thing my peers often suggest to me is INVEST! And that too as soon as possible, as if it’s a limited elixir and only early birds could access it.

Moving on, investment had never enticed me, as I am quite a defensive person and have a loss aversive behaviour.

But, still, deep down my heart I knew something needs to be done regarding my investment strategy, just by accumulating my monthly salaries and deducting necessary cuts which are essential for my survival.

I can’t just soak up the remaining amount in my bank account and let it stay there like I used to do in my childhood with my piggy bank!

Soon things changed for me.

As I came across an insightful financial strategy book, ‘All Your Worth – The Ultimate Lifetime Money Plan’ by Elizabeth Warren and Amelia Warren Tyagi.

This book turned out to be my guide and mentor in my forthcoming financial journey which I was looking for so long.

It helped me to develop an investing acumen with the amazing ’50-30-20’ budget rule, which presents a perfect investment plan, as the amount after-tax deduction is divided into three sections and then allocated.

As, the first 50% goes for the ‘NEEDS’, referring to the expenses which must be paid, like the rent, bills, fees, or so on.

The next 30% is allocated for the ‘WANTS’, things which don’t fall under the category of MUST rather in the category of CAN, consisting of your outing, watching a movie, delicious dinners, or trendy apparel (the only catch here is the amount shouldn’t exceed the 30% bracket.)

The remaining 20% is for the ‘SAVINGS’ also known as the ‘EMERGENCY FUND’ or ‘ASPIRATIONAL’ or ‘TOMORROW’ fund, where the assigned fund goes into mutual funds, stocks, fixed deposits, or sources that keep your money in a flux of compounding.

This book especially taught me the art of controlling money and finding ways where my money will not only be safe but will also grow along with my growing age!

REAL ESTATE INVESTING – BLESSING IN DISGUISE

When I had made up my mind regarding investing, all I could think of was REAL ESTATE, I believed property is the best investing venture because of the Global Property Guide Article.

The article mentioned that the United States seasonally adjusted national home price index witnessed a growth of 19.7% in July 2021.

However, despite all the positive signs hinting me to invest in real estate, yet, I was anxious, petrified, and unsure, so I, relied on my procrastination skills, because I wanted to be a real estate investor but at the same time, I do not wanted to be a retail estate investor.

Finally, when I made up my mind after a month’s gap of my fidgety cognitive behaviour.

The first thing I did was, I started calling myself a real estate investor, in need to get myself in the groove and ward off my procrastinating attitude.

And, as a second step, I created a deadline of 30 days and made a true promise, that 2 months after November 01, 2021, I will have the registration paper in my hand of my numero uno real estate property.

So, for myself I created a 7-Step guide!

Now, you may ask ‘WHAT IS 7-STEP GUIDE’, well I am feeling generous today, so I will let you in on the little trade secret!

This 7-step guide is a tried and tested strategy for people who aspire to be real estate investors and are yet to scrounge for their first property.

So, these are the 7 steps

1. What’s the HURRY!

2. Recalculate your EXPENSES

3. Build your Own PATH

4. BEST NEIGHBOURHOOD, BUT WHERE?

5. Know your FACT

6. FROM where MONEY will COME

7. Welcome to the World of Real Estate Investment

STEP #1 What’s The HURRY!

It becomes essential for an individual to know where they want to see themselves in the next 5 years as a real estate investor.

Before making up your mind about something, it’s a prerequisite to weigh the pros and cons of that idea or venture, because once you commit yourself to that idea, then there is no turning back.

Start by writing down broader goals or objectives: –

Like in my case, I started with

1. How much return do I want from my rental properties?

2. To earn the returns I speculated, how many properties do I need to purchase?

3. How much is my monthly budget as a real estate investor?

So, we will start with question no. 1 of RETURNS?

I wanted my monthly return from a single rental property to be somewhere around $2000 to $3000.

For that either I could buy a single property which will produce the equivalent rent I expected or I could go for two or more properties with the divided returns like $1000-$1000 each or one property with $2000 and another of $1000.

Once I got the answer to my two questions now, I wanted to decide how much I have to save monthly.

According to the 20% budget rule, suppose I earn $10,000 per month, I have to allocate $2000 for rental properties as my savings.

And, if we assume the price range per sq. ft in New York on an average it lies between $600 – $1000 in a well to do locality, so according to the parcel of land which is 1000 sq. ft in size it will cost me at the rate of $800/sq.ft (approx.), almost $800,000.

So, $2000 (monthly savings) X 12 (in one year) = $24,000/-

This is 1/33rd of my expected rental price and it will take me almost 33 years to reach the amount of $800,000, whereas if somehow I increased my savings capacity 4 times my time range will be reduced by 8 years.

But, I also needed to keep in mind inflation and other stuff which will keep land prices at a constant high.

Despite, I was unable to fulfill my third objective, I still got clarity regarding my approach as a real estate investor. And, you will see in Step #6 how I managed to arrange the money.

Step #2 – Recalculate your EXPENSES

As I know that with $2000 per month as a saving amount I can’t achieve my future rental property goals, though with the existing savings I could purchase a reasonable parcel of land, my future as a real estate investor seemed bleak.

So, what I did was I created an Excel balance sheet of my monthly expenses, and like in school as I used to do in my business studies, I created a budget plan, where all my expenses got classified either as Fixed Expenses or Variable Expenses.

However, as the law of expenses says that one can’t negotiate with fixed expenses as one is bound to pay them but you can manipulate them by adopting the minimalistic approach in your life.

As your bills and insurance can be curbed, going for the second preferred choice rather than the premium category, still it would serve your purpose.

Now, coming on to the variable expenses, you could control it by opting for choices which are not extravagant like instead of malls go for the local markets for shopping, rather than exotic dinners try for some mediocre family restaurants, holiday destinations are for relaxing of mind not to show off, go to some less expensive destination, and so on.

You would not believe that once I wrote all my expenses in Excel, under the following categories I got to know how much unnecessary I was spending and it led me to put a lid on all such expenses.

And, you would not believe I was able to save almost $6000 which directly went to my savings budget.

And, now from $2000 it went up to $8000.

Step #3 – Build your OWN PATH

As a real estate investor in my initial years, I always struggled with the properties as to which one is the BEST!

One fine day I got to know fully furnished apartments are the best, the next day I got to know row houses are on the demand, this sort of flashy news always distracted me and made me confused.

So, I decided to build my own strategy by shortlisting my choices. I eradicated all the options of extravagant properties like bungalows, complexes, and business areas, and focused on apartments as it was on my budget and something which could manufacture huge returns for me in the future.

And, for that I created my category of 2BHK, as in New York it’s in high demand, and getting a fully furnished 2BHK flat is a dream for house hunters.

Once, I created my own category. I consolidated desired returns and price range, and considered it as my compass in the infinite and directionless world of real estate.

Step #4 – BEST NEIGHBOURHOOD, BUT WHERE?

In geography, I read that whether it’s the industries, agriculture practices, or settlement one thing which passes the test of time is LOCATION.

And if you are a real estate investor it becomes most crucial for you to identify the best location where your first property purchase will come from.

As a solution what I did was I started reading a lot of news articles and followed government websites to understand their future policies in New York City, because what drives the prices of land or property are as follows:

Good Connectivity to Basic Amenities
Safe and Serene Environment
Distance from Industrial Pollution
Future Scope in terms of Land Rates

Once you have identified the key drivers or factors in terms of location, start creating a real estate property-based map that will have all these factors as the center of interest.

This will provide you with a good 4 to 5 locations, and now another important question comes is whether you will invest in your own locality or you will go a long distance.

For that, the price will be your key determiner in both the options, because from my personal experience it doesn’t matter whether the property is near you or far from you.

I went for the long-distance investment in real estate properties because the deal I was getting was at a reasonable price.

And, a good real estate investor never misses on a profit-making opportunity.

Step #5 – Know your FACTS

As an investor, you should always do your homework and in this scenario, it comes from calculating all possible expenses which you need to put on your property to keep it running.

After buying a property it’s important to do the MATHS, as how much you will need to spend from your pocket to make that property in a purchasable state.

Either you could go for a fully furnished apartment like I did, but most of the time you will not get that option for which you need to ‘run the numbers’ where you generate your cash flow, by identifying income and expenses.

Income will be your money generated from the rents, even the salaried one can be included.

The expense will be your monthly maintenance, mortgage, other repairs and miscellaneous expenses.

So, subtract your expenses from the income you will get your cash flow. If the cash-on-cash return (Cash ROI) analysis is positive it means you have a good deal in your hand, but remember to adjust it with the inflation rates.

In my case when I did my analysis and checked my facts my Cash ROI was approximate $2500/-.

ALSO READ: What to Know About Home Inspection as a Homebuyer

Step #6 – FROM where MONEY will COME

It becomes essential as a real estate investor to identify your financial channels whether it will be your savings or loans.

In my case, as I had kept my deadline up to 30 days I went for the option for a loan, but if you have an ample amount of savings I would not suggest you go for a loan, as things can become dicey there, so I would leave it up to you to explore that territory.

However, once I got my loan approved I followed the simplest strategy which is mentioned below

Buy the property.
Renovate that property.
Rent it out when the renovation is complete.
Refinance from the property, as you will be able to get an appraisal by the income generated from it. But, first, get your returns, then go for this option, not the other way around.

Step #7 – Welcome to the World of Real Estate Investment

As you have attained all the crucial information through this blog, now it’s time to test in the real world.

I began by looking at the long-distance posh localities or apartments as they are mostly furnished and I thought I could save a huge chunk of renovation cost you will not believe it, I almost looked out for 40 properties before falling for my first real estate investment.

It was a 2BHK fully furnished apartment in Long Island City, Western Queens, New York City.

And, for all the budding real estate investors I will suggest looking for at least 10 to 15 properties before you make your investment, do not RUSH for the property let the property come to you.

Before acting or purchasing, think twice, because ultimately it’s your hard-earned money that is on the line.