A Realtor's advise for new investors

[Jeet Sangha]

As a real estate agent, I often collaborate with new investors, especially those keen on pursuing a buy-and-hold investment strategy. I've noticed that many new investors can find themselves uncertain when a potential deal presents itself. They grapple with indecision and often feel overwhelmed. This hesitation is frequently tied to their personal preparedness, or lack thereof. To assist you in taking the first steps towards investing, I've compiled a concise list of actionable recommendations:

1. 1. Obtain Pre-Approval: If you are serious about entering the world of real estate investment, it's crucial to conduct a thorough financial assessment. Determine the amount of funds you've saved for a down payment and closing costs. Are you eligible for conventional financing, or will you require a hard money loan? Consult with multiple lenders to ascertain the extent of your purchasing capacity based on your credit score and savings. Being pre-qualified for a loan is essential when you're ready to submit offers. Keep in mind that many hard money lenders may prefer lending to an LLC rather than an individual, so it's wise to interview several hard money lenders. A valuable deal often disappears from the market within a day or two, underscoring the importance of financial readiness.
2. 2. Think Beyond the Numbers: In the initial evaluation of most deals, the financials may not seem favorable. This is where creativity can make a significant difference. Consider how you can enhance income potential. Are there structures that can be converted into living units? Check the zoning regulations to see if additional units, such as high-density or medium-density housing, can be built in the future. Is there wasted space within the property that could be transformed into an additional bedroom? If the rents are below market rates and the property requires substantial renovations, you might consider evicting current tenants, conducting a complete remodel, and subsequently renting the units at current market rates (please seek advice from a professional regarding rent control laws in California).
3. 3. Submit Offers: Once you've inspected the property and performed your financial analysis, it's time to start submitting offers. Even if you don't secure the property with your first offer, the experience will help boost your confidence. You may encounter three possible outcomes when submitting an offer: acceptance, a counteroffer, or rejection by the seller. A counteroffer is the most likely response, and this is where the real negotiation begins. If your offer is accepted, you still have a due diligence period to thoroughly investigate all aspects of the property. If, for any reason, you are uncomfortable proceeding, you can cancel the deal by citing a specific contingency outlined in the contract.

Lastly, when working with a Realtor, open and effective communication is vital. Provide feedback on the listings they send you, so they can better understand your preferences. This way, when the right property becomes available, they'll be able to promptly inform you. Effective collaboration between you and your realtor can greatly streamline the investment process.