My Real Estate Investment Journey
The end of 2019 felt like a time for great economic opportunity. I had gotten my real estate license and joined a brokerage all while practicing full time as an invasive cardiologist. My optimism was high for what the world of real estate investing held for me as other cardiologists had raved about the financial rewards of rental properties, but little did I know much the world would change in just a few months.
Right from the beginning I had set real estate investment goals and crafted action plans. All that was needed was real estate inventory to set things in motion. My spare time was spent pouring over real estate books and listening to investor podcasts to set myself up for success even if the market changed.
Real estate investors all over the country had been predicting that we were due for the market to change as it has been a strong sellers market for several years, but none had expected how much our entire lives would change because of a pandemic. Despite a time of great uncertainty and a rapidly changing economy, I argue this will lead to an enormous turning point with great investment opportunities in the near future.
COVID-19 stay at home orders have provided time to be reflective and re-evaluate how we spend our money and our time. Physicians have not been immune to the financial impact of this pandemic, highlighting how important it is to have financial literacy and to invest wisely.
Preparation For Success in Real Estate Investing
This is not an argument to go out and rush into buying properties, but rather this is the time to educate yourself on your market and set systems in place so that you will be prepared for changes that are likely to come. As all good investors know it is about investing over the long term to build wealth and not trying to time the market for the slam dunk deal. However, volatility in the economy is high right now and this has made valuation of investments very difficult giving us a moment to pause on purchasing properties until there is more clarity.
During this unstable time I have chosen to educate myself. Chance favors the prepared mind. Why not deeply immerse yourself in understanding real estate investing and local markets when circumstances are unfavorable. Low inventory and volatility in the market make it a less than inviting time to begin investing in real estate.
The following list includes recommended focus areas to develop a strong real estate investment plan.
1.Draft budget and rental analysis.
Identify a clear budget and what type of properties you are looking to invest in. Multifamily, single family, condo, manufactured homes, or storage facilities. Determine cost criteria. You need to know the area rental prices, property taxes, and who is responsible for utilities (landlords versus tenants) when analyzing net operating income. You want to be able to identify what properties meet your criteria without having to spend hours on each analysis. This comes with setting guidelines and knowing exactly what you are looking for.
Talk with multiple lenders. Find out who has the best rates and what financing options would be available to you. There is no need to run a credit report with each lender. All you need is a basic outline of terms and a contact person if you are interested in moving forward. Explore credit unions, small banks, and large national banks. Portfolio lenders may allow you to put down a smaller down payment so that you can then use that extra money to invest in other properties. You want to know your options. Pre-approval and early underwriting on a loan can make you a much more desirable buyer in the eyes of the seller. Financial preparation is often overlooked or delayed until the last minute, but is one of the most crucial steps in building a real estate portfolio.
3.Learn detailed geographical differences in neighborhoods.
Before you invest in a property you need to understand it inside and out and that includes the location. We have all heard location location location! That is because you can add value to a property through renovations but you can’t change the location (unless it’s a manufactured home). Oftentimes just one or two blocks can make a huge difference in desirability and vacancies. Spend time talking to people who have lived in the area for several years and drive/walk around during different times of day to determine traffic patterns. Read about crime statistics in the area to get a sense of safety and security in the area.
4.Quantify desirable amenities.
Different neighborhoods attract different renters. You need to know what the renter population is in the area and what is needed. Who are the major employers in the area? What is the age demographics? Young professionals versus retirees. This can lead to a huge difference in what is wanted in a rental unit. That amazing exposed brick probably doesn’t mean anything to a retiree, but the rambler without stairs is key for someone with limited mobility or high fall risk.
Systems provide automation to your buying and holding process. This will allow you to repeat the process more frequently and more efficiently. Find programs to help organize your documents and establish relationships with professionals you trust. Bookkeeping is key to running your business successfully. A good CPA will thank you for documenting all your expenses in an organized system and your lawyer will love that the lease is easily accessible if you run into a dispute with a tenant. This brings me to the next point of networking. Take the time to build lasting relationships. It is so valuable to have an excellent real estate agent, contractor, lender, property manager, CPA, and lawyer. Choose wisely and hold on to them.
6.Read. Read. Read.
My goal has been to read at least one real estate or business related book per month. There are several excellent books out there that can provide the basics about rental properties and how to run a business. Learn from those who have done this successfully before you. No need to reinvent the wheel. See one. Do one. Teach one.
So even though this may not be the perfect time to buy. You can actively invest your time into studying the market and preparing systems so you can compete with the best real estate investors out there when the market is right for buyers.
Fola Babatunde, MD is a practicing invasive cardiologist in Washington. Real estate has allowed her to be creative and build financial independence outside of medicine. Her website is https://realestateinvestmentwealth.wordpress.com and she can be followed on LinkedIn https://www.linkedin.com/in/fola-babatunde and Instagram @physicianrealestateinvestor.