Colorado Real Estate News

5 ESSENTIAL FINANCIAL STEPS TO TAKE BEFORE INVESTING IN REAL ESTATE

If you’ve been thinking about investing in real estate, getting your finances in order before you start searching for properties and scheduling appointments will save you from money headaches in the long run. 

Real estate investments could be one of your largest investments, and unless you have cash ready to invest, you’ll need a plan for financing and a plan for cash flow in the future. Here’s what you need to do before heading out to property shop:

1) Create A Financing Plan

If you have strong credit, consistent W-2 income, and a sizeable down payment, traditional financing could be your best option for your first real estate investment since interest rates are typically low and the terms are attractive. Figure out how much you can afford based on your current expenses, and how much cash you’ll need to have on hand for renovations and upgrades. Make sure you know where your liquid funds will come from to improve your chances of landing a good deal. With cash, you can move faster, which will motivate most sellers. 

 

2) Review Your Credit Report And Keep It Healthy

Request a copy of your credit report through one of the credit bureaus and make sure you dispute any errors or provide an explanation for any derogatory issues or late payments. Keep your credit score from slipping by avoiding any new credit inquiries, canceling any credit accounts, or lowering your limits with any creditors. 

 

3) Get Mortgage Pre-Approval

With an approved mortgage in hand, most lenders will lock in an interest rate, so if rates fluctuate upwards while you’re searching for the perfect investment property, you can relax knowing that your rate isn’t going to change. To get pre-approved for a mortgage, you’ll need to have the following in order: 
  • Personal documents: Two forms of government-issued ID, your social security number, as well as proof of ownership of other property, including your primary residence or other investment properties.
  • Tax returns: For the previous year, and potentially for the last two years.
  • Proof of income: W2s, paycheck stubs, 1099s, or if you’re self-employed, a year-to-date profit and loss statement. 
  • Proof of assets: Bank statements, 401Ks, IRAs, and money held in stocks or mutual funds.
  • Summary of all debt: Primary property loan(s), credit card balances, student loans, and all monthly payment amounts.

 

4) Stay Competitive By Doing Your Homework

Just because your financing is approved, doesn’t mean you’re ready to start shopping. Do some comparison shopping and contact other lenders to see what kind of interest rate they can offer. A few percentage points might not seem significant, but can save tens of thousands or more over the lifetime of a loan and affect your monthly cash flow. Consider checking with a bank other than the one you bank with; they might be very likely to be more competitive to win new business. 

 

5) Liquid Funds

Based on your financing plan, you’ll have figured out how much cash you need to have in hand for a down payment and closing costs. Also factor in how much cash you’ll need for renovations or repairs if the properties you’ll be considering aren’t turn-key. Consider your cash flow from month to month to make sure you’re not projecting negative cash flow. Or if you are, that you have a backup source of cash such as drawing from your personal accounts.

The goal of real estate investing is usually to make money. As your investment style evolves and matures as a real estate investor, the amount of risk you can withstand is bound to change. Keep your original goals in mind, and do your homework to help position yourself to enjoy the financial returns. 

Thinking of investing in real estate or changing your investing goals? Get in touch!

Colorado Real Estate News

11 COMPONENTS OF A REAL ESTATE BUSINESS PLAN

If you’ve never crafted your own real estate business plan before, doing it for the first time can feel especially overwhelming. The good news, however, is that if you include certain things in your plan, and construct your plan in a certain order, you’ll have no problem creating something that fits your business where it is — and prepares you for growth next year.

When you’re creating your real estate business plan, make sure you include the following, ideally in this order.

 

Market assessment

The most perfectly crafted real estate business plan won’t get you anywhere if it’s focusing on the wrong part of the market, an area where a business is going to contract instead of expanding — unless you have a very specific plan to capture more business regardless. But to make that specific plan, you’ll need to know where the market is, so even if your ultimate goal is to swim against the tide, start by pinpointing the tide itself.

Take a look at the past year (or, ideally, two or three years) of sales in your area. Look at price points, location, days on market, and see if you can identify or pinpoint any trends. Did luxury sales look stronger than normal last year, and why do you think that could be? Did price growth suddenly start to soften around entry-level homes?

When you know who is buying and selling which homes in your area, what they like and what they don’t like, and what they’re willing to pay or to list their homes for, then you’ll have a good idea of how you can fit into that mix and provide services to those buyers and sellers.

 

Mission

After you’ve assessed the market, take some time to think about what inspires you in your day-to-day life. There are probably some moments you’ve experienced in your career that make you feel like all your effort and hard work paid off in a rush of reward and accomplishment. If you think about those moments and try to identify any common denominators or features they each hold, what might those be?

You could realize that you feel most fulfilled when you’re handing keys over to a single parent who’s working on building a stable life for a family on a single income. Or perhaps you get that rush helping an elite seller offload a property discreetly, quickly, and for a sizable amount of money, earning their praise and referrals.

Why tackle the mission after the market assessment? Truthfully, you could do either one of these exercises first; if you do the market assessment first, however, then your mission is likely to be at least a little bit more actionable in the current real estate environment.

 

SWOT analysis

The acronym, if you’re unfamiliar, stands for “strengths, weaknesses, opportunities, threats” — and this is a critical analysis to complete for your business plan if you want it to be competitive. Start with your strengths: catalog where you know you do well and count those as assets. Be equally thorough and even more brutal with weaknesses, though.

Next, look back at your market assessment and think about the opportunities and threats that you think will be most important to have on your radar in 2020. Maybe one area of your business or one method of lead generation that was important to you seems to be drying up; in that case, you definitely need to mark that as a threat. On the other hand, perhaps a new industry opening up in your area or a chance meeting with a developer who wants to work with agents could be a sweet new opportunity for you.

 

Goals

You’ve got the foundation built for your real estate business plan; now it’s time to put an actual, well, plan into action by setting some goals. The work you’ve done on the market assessment, your mission statement, and the SWOT analysis should give you a good framework for where you should make goals in your business to help drive you forward and what, exactly, those goals might be.

For example, maybe a combination of new industries emerging in your area, a new network connection into some new condo developments, your own assessment that condo sales are climbing while single-family home sales are stagnating, and your age and technology savvy all lead you to believe that there’s a big opportunity in condo sales and that you could be the person to tap it. Perhaps your goal will be to close a certain number of condo sales this year or to double the amount you did in 2019.

It’s a good idea to build a few different goals around different areas of your business so it’s not all about production. Think about the financial and lead-generation goals you want to meet, of course, but also consider operational goals like hiring an assistant, or lifestyle goals like being able to take two weeks of vacation in 2020 without things going haywire while you’re away. You can even use this opportunity to set health goals, relationship goals, anything else you want to work on next year; after all, your work is part of your life, and if one of your work goals is to give yourself more spare time and energy to spend with your loved ones, that’s both admirable and doable.

 

Strategic plan

Your strategic plan is essentially your road map from getting from where you are today, your current state of affairs, to reaching or passing your goals. This is the part of your plan where you break your goals down into actionable steps, giving yourself a clear pathway to the end of 2020 and the successful completion of every single one of your goals.

One effective way to do this is to look at the gap between where you are today and where you want to be, measure how wide the gap is, and assess the best way to bridge it. If you wanted to run a marathon, you’d know that you have to start running every day, so “run every day” would probably be on your list of things to do to accomplish that goal, along with “register for a marathon” and “buy running shoes.”

 

Schedule

Taking the marathon analogy to the next level: When you start training, hopefully, you would know better than to try to run twenty miles on your first day. You want to build up to running those long distances, which means you first need to acclimate yourself to running shorter distances.

With your goals and strategic plan in hand, think about your schedule and how you’ll time those incremental steps toward your goals. Don’t forget about seasonal or annual commitments that might make things easier or more difficult for you at different times of the year and then plan accordingly — your future self will thank you for your thoughtfulness.

 

Budget

You need to spend money to make money, so the saying goes, and that’s definitely true in real estate as much as any other industry. But that doesn’t mean you should be spending indiscriminately; in fact, you should actually be setting a budget for these goals and then doing your best to come in under that budget if you possibly can.

Make sure you are paying attention to the budget in your business plan. Outline how much you will spend upfront and then reinvest in your lead generation system, how much you will save for business expenses, how much you will reinvest for retirement — if it’s money-related and you have a goal tied to it, but the budget in your business plan.

 

Marketing

You’ll have to market yourself as an agent in addition to marketing your listings, although those tasks can take different priorities in different years. So think about your marketing goals in 2020 — even if it’s only to automate what you’ve been doing, or delegate it so you don’t have to think about it anymore. Have you already put those into your business plan? What else might you need to add to help actualize the rest of your goals in terms of marketing?

 

Systems and processes

Outlining the systems and processes that you’ll use daily in your real estate business plan might seem like overkill, but on the other hand, if there are things that you’re doing at a very practical level and on an extremely regular basis that don’t entirely align with your goals and your mission … don’t you want to know about that as soon as possible so you can make some changes?

The other advantage to outlining systems and processes in your business plan is so that you fully understand what you are personally handling and what you’re outsourcing, and you can decide when it makes the most sense to either delegate further, outsource, hire an assistant, or whatever you need to do so that you’re able to reach your end goals.

 

Executive summary

This is the part of your business plan that sums everything up, exactly what it sounds like. Why is it necessary? Well, if you need to remind yourself in a sentence (two, tops) what you’re doing, for whom, and why, the executive summary does that perfectly. You can even use that structure to create it, and if someone asks for your elevator pitch, you’ve got it down to a single sentence — impressive!

 

Check-ins

Some agents create a real estate business plan and then never check it again until it’s time to make next year’s plan … which might as well look a lot like this one, if not identical because you never implemented anything. Look at your goals and your schedule, then decide how often you’re going to pull out your business plan to review it and see how you’re pacing. Weekly? Every other week? Every month? (That’s probably the longest you want to go, realistically.)

If you’ve had difficulty sticking to a plan in the past, give yourself shorter time periods between check-ins so that you can self-correct more quickly when you have to. And if you find that you’re hitting some goals more easily than others, you can always stretch out those check-ins so that you’re only focusing on where you need improvement.