Ok, so many of you know I have been on here to research commercial real estate. I am a huge believer in learning something so well you could teach it (it certainly makes you retain more). So obviously I am not JScott or SteveO but I would like to share my process of investing in real estate for 1. the new people who have no clue, and 2. for feedback from the experts on my process.
I am huge on keeping things so simple you could teach it to a 4 year old (as I often must do). So I have broke down the investment process into 11 steps.
Step 1: Pick an investment
Pick an investment you are interested in. Not just because your brother-in-law said it was good or because you hear it on the news or late night TV, but because you genuinely enjoy the subject and like to learn about it.
In my case, I chose Medium sized apartment buildings (20-50 units in size)
Step 2: Know why (do your research)
You must know WHY you want to invest in this particular asset. If you can't convince your friends, or even yourself, that it is a good plan, you won't be able to get the money for the project. Reasons don't have to be ellaborate, but they do have to be solid. If your reason is "because so-and-so said it on late night TV" that doesn't cut it. YOU must know why, and be able to repeat it at any time. Do your research! Understand the type of investment! Figure out the pros and cons, hopefully the pros outweigh the cons.
Again, in my case I decided medium size apartments for many reasons but here are the major ones:
By looking at what is going on in the neighborhood you can tell if it is a good market or not. There are several things to look for such as new job opportunities (which will bring more people there), new construction (which usually would mean growth in the area), and several other aspects. The key is to look for an area that is on an upswing, purchasing the investment BEFORE the market jumps back up into growth mode. There are several areas that growth is impossible so holding on to a property in that area would work well as long as it was not declining. Because this is a pretty complex area, I use the KISS method for myself (Keep it simple sensei!) Look for basic things such as large businesses in the area vs. availibility of housing/apartments. If there are a ton of jobs and not many places to live, jump on it. Population usually follows employment.
I am currently in this stage. Looks like this is a tough spot because of the dreaded analysis paralysis. I could look at what is happening in an area for days. As a person, if you understand business and really just look at things you can usually tell what will happen in an area. For examplel; right by my place there is this TERRIBLE intersection that is ALWAYS backed up, accidents fairly often, it's a crossroad of two major highways and it's handled with a stoplights. Well I found myself saying "they have to fix this some time" well lone behold a couple months ago they approved the city to do major construction on that intersection making an overpass and everything. Duh, everyone knows it was coming. I think the area will grow larger because of the easier access and routes.
... continued in a minute...
I am huge on keeping things so simple you could teach it to a 4 year old (as I often must do). So I have broke down the investment process into 11 steps.
Step 1: Pick an investment
Pick an investment you are interested in. Not just because your brother-in-law said it was good or because you hear it on the news or late night TV, but because you genuinely enjoy the subject and like to learn about it.
In my case, I chose Medium sized apartment buildings (20-50 units in size)
Step 2: Know why (do your research)
You must know WHY you want to invest in this particular asset. If you can't convince your friends, or even yourself, that it is a good plan, you won't be able to get the money for the project. Reasons don't have to be ellaborate, but they do have to be solid. If your reason is "because so-and-so said it on late night TV" that doesn't cut it. YOU must know why, and be able to repeat it at any time. Do your research! Understand the type of investment! Figure out the pros and cons, hopefully the pros outweigh the cons.
Again, in my case I decided medium size apartments for many reasons but here are the major ones:
- Bigger properties means bigger money, I rather put all my effort in to a couple large deals instead of a ton of small deals.
- Bigger properties also allow salary for a management company to manage the property so I can run my business and not worry about the day-to-day operations.
- Even though the housing market is in the slumps (especially where I live) people will always have the mentality that they cannot afford a house, so people will continue to rent.
- Because the properties are bigger they are treated as collateral in the deal. If all hell breaks loose and I am really not the manager I am trying to be, the bank will take the property. I won't personally be on the line for most, if any of the money. (being young, I have no credit, it would be near impossible for me to buy several SFHs (Single Family Houses)
- I have no money! Bigger properties will attract multiple investors that would be glad to give up 10% ownership to me for finding the deal, setting it up, and managing the investment.
By looking at what is going on in the neighborhood you can tell if it is a good market or not. There are several things to look for such as new job opportunities (which will bring more people there), new construction (which usually would mean growth in the area), and several other aspects. The key is to look for an area that is on an upswing, purchasing the investment BEFORE the market jumps back up into growth mode. There are several areas that growth is impossible so holding on to a property in that area would work well as long as it was not declining. Because this is a pretty complex area, I use the KISS method for myself (Keep it simple sensei!) Look for basic things such as large businesses in the area vs. availibility of housing/apartments. If there are a ton of jobs and not many places to live, jump on it. Population usually follows employment.
I am currently in this stage. Looks like this is a tough spot because of the dreaded analysis paralysis. I could look at what is happening in an area for days. As a person, if you understand business and really just look at things you can usually tell what will happen in an area. For examplel; right by my place there is this TERRIBLE intersection that is ALWAYS backed up, accidents fairly often, it's a crossroad of two major highways and it's handled with a stoplights. Well I found myself saying "they have to fix this some time" well lone behold a couple months ago they approved the city to do major construction on that intersection making an overpass and everything. Duh, everyone knows it was coming. I think the area will grow larger because of the easier access and routes.
... continued in a minute...
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