5 Step Plan for Getting Started in Real Estate Investing

If you haven't already read them you may want to go back and check out the following two posts which really set the stage for this one:

• Experience is the Best Teacher of Real Estate Investors
• Strategic Real Estate Investing: The Missing Piece of the Puzzle?

If you've read these previous posts, it should be fairly obvious to you that I believe the most important thing for would-be investors is to TAKE ACTION early in the process.  I have spoken about the concept of looking at your first deals as "training deals" because the most important thing that will come from them is the learning rather than the profits.

However, getting those first few deals done is the hardest thing about real estate investing for most people.  And the reason for that is the risks (real and perceived) outweigh your risk threshold - plain and simple.

So, what we need to do is first take steps to reduce the risks and then boost your risk threshold until it surpasses the remaining risks.  Factors that influence your risk tolerance include:

• practical education / experience
• theoretical education
• confidence
• skills
• upbringing
• personality
• psychological make-up
• mood
• financial situation

Ironically, the biggest barrier preventing people from getting their training deals done is the lack of practical experience itself, since it has the greatest effect on both your risk (knowledge) and your tolerance for risk (confidence).  But since you can't get that practical education before doing any deals we need to utilize the other factors that will get you comfortable enough to take action.

Here is the 5 Step Getting Started Plan that will get you over the line so you can go on to attain the confidence and know-how that can only come from practical experience:

Step 1 - Get An Overview Education

Get a basic understanding of most of the common methods for making money in real estate investing.  This can be done online completely for free but you might like to consider resources that review various techniques and also attend some free (or cheap) seminars and start mixing with active investors.

The broader your education is in the early days the better off you’ll be because you’ll be more informed about where to ‘invest’ your money for the greatest return (ie. which methods to focus on and learn more about).

So, my suggestion for getting some direction and making your education highly effective is to get your hands on any resources that review the gurus’ techniques so you can choose one or two strategies to focus on and maximize the return on your learning investment.

Do broad research of your options early in the process and you’ll minimize the risk of wasting money on unnecessary or unsuitable educational products.

Step 2 - Screening and Selection of Investing Methodologies

Next you need to choose one investing method that you will build your business around.  If you REALLY need more information before you can choose one, at least get it down to a short list of no more than three.  The key to this screening process is a SWOT analysis.  SWOT stands for Strengths, Weaknesses, Opportunities and Threats and you should find a method that is well matched to your strengths and weaknesses as well as the opportunities and threats in the marketplace.

Step 3 - Set And Commit To Goals

Where do you want this business to take you and how quickly?

I know many people just shut off when someone starts talking about goal setting but this is a very important issue that cannot be ignored.  Real estate success, like all success, is driven by good goal setting.

Personally for me, goal setting is the thing that I attribute my real estate investing success to most.  You can read more about that in my post "Getting Started In Real Estate Investing" and I also strongly encourage you to read this article about how to set goals for success in real estate investing.

Step 4 - Risk Reduction

There are several things you should do to reduce your risk levels to the point that you feel reasonably comfortable doing your first deal.

i) focused education

Once you have chosen the method you will focus on, THEN you can start to spend some money on more detailed information about applying that method if you want.  But do not go and buy up every course out there before you have chosen which tactic you will apply in your business.  That will just create confusion and overwhelm you.  Focus is key.

I would dare say that this is NOT a mandatory step although, like me, you may need to do this to boost your confidence and reduce your risk.  In my opinion, education is the most powerful risk mitigation tool.

ii) analyze the numbers

You should begin by creating your own spreadsheet that allows you to analyze the numbers for your chosen investing method.  The main reason to do this yourself (even if you also use an "off-the-shelf" package) is you will know the numbers inside and out if you have to create your own spreadsheet.  It will give you a MUCH deeper understanding of what it takes for a deal to be profitable.

iii) contingency planning

Brainstorm any possible problems (within reason) you think you might encounter and then come up with a contingency plan for each.  eg. if you have trouble finding tenants you could hire a property management company to put tenants in the property.  Yes, it will eat into profits but we are talking about a possible defensive position you can use if needed.

If you do these things along with the obvious risk mitigators such as inspections and insurance you will minimize your risk sufficiently that you should feel comfortable doing a "training deal" or two just for the experience.

Update: Here is a new article I've written specifically on the topic of risk management and risk reduction techniques.

Step 5 - ACT!!!

Go out and stretch yourself.  Make that first deal happen.  Even with all the preparation to reduce your risks and build your confidence you will probably still feel quite uncomfortable.  Be confident in your preparation (if you've done it) and stretch yourself.

If you are still far too uncomfortable or just can't muster the courage to do it go back over the previous four steps and see which will help you break through by getting your risk threshold to surpass the risks.

The rest of Step 5 is all about solving issues as they arise.  At the most basic level this will include: locating suitable properties, analyzing the numbers, financing the deal, and finding suitable tenants or exiting the deal.  But the key is to stay focussed on the game plan for your chosen tactics.

So there it is.  I hope this plan is of use to those of you wondering how to get started in real estate investing.

 

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