Welcome to Summary School
Learn How to Invest in Real Estate in Alpharetta
Hello Everyone, thank you for joining me! Today we are discussing how to create your REAL ESTATE INVESTING PLAN. This message is helpful for Buyers, Sellers and Investors.
Today I want to show you how to create your real estate investment plan and how this will help you evaluate potential deals. Before we jump into the 5 questions, I want to clarify the difference between a Real Estate Investment plan and the Home Buying Plan.
The Real Estate investment plan is focused on your Long-Term Goals. This is your 5-10 year plan on what you would like your portfolio to look like and produce within a given time frame.
The home buying plan is in consideration of the next deal you are putting together.
Essentially, your home buying plan should support your long-term goals but there may be some variance from deal to deal to balance the overall objective.
So, here are the 5 primary questions each investor should be able to answer about their Real Estate Investing Plan:
- What are you trying to accomplish with your real estate investing and in what timeline?
- This question will clarify your position along the cash flow to appreciation spectrum
- The timeline aspect will help with planning and staying focused
- Both of these responses will guide many of the answers to the remaining questions
- How involved do you want to be in the investment?
- This is where you decide if you are planning to Manage units, oversee Renovations & interact with any tenants
- Alternatively, If you want to passively invest, then you might buy tax liens, be a private equity lender or use a self-directed IRA
- What kind of property or investment are you looking for?
- Property types include SFR, MFR, Commercial, New construction/development, raw land
- Other Investment types can be holding mortgages, partnering in joint ventures, or investing in syndications.
- What is your target Return On Investment and how do you calculate that figure?
- I’ve found every investor evaluates what is a good ROI differently and they have their own way to calculate what works for them. It’s important to know, understand and consistently use your method of calculation in evaluating deals.
- How much money do you have to invest and how do you plan to finance the deal if necessary?
- Obviously, the amount of money you have will influence your answers to the questions before this
- Plus, the investment type, ROI, and your activity level will be affected by the availability of funds.
So that’s it, the 5 steps to creating your real estate investing plan. Let’s build an example:
Over the next 7 years I want to buy 1 single family home per year in a strong school district within 15 minutes of where I currently live. I want at least a 3 bed/2 bath under the median price point. I prefer homes that require little to no renovation and I need a property manager. I will put 25-30% down for each home and have funds to cover closing and any immediate repairs, I will mortgage the rest of the amount with a conventional lender. Financially, the rent payment should cover the expenses associated with the home including management, maintenance, capital expenditures, vacancy and PITI. Any profit above that is great but not necessary to make the deal happen. I will rely on debt amortization, increasing rental rates and property appreciation to increase profitability over the next twenty years.
That’s it, a simple real estate investing plan, yours may be very different depending on many factors, but, those differences make it fun and keep it interesting.