Buying Real Estate Investments - Part 1 of a 6 Part Series - Research

Purchasing real estate is a systematic process that requires strategic planning. In this series, I will discuss 6 steps that can lead to a more successful buying venture. Whether it's your home, an investment property, or a small commercial business deal, certain steps should be followed. Granted there are unique variables for personal home buyers vs investment property buyers vs commercial buyers, but the basics are the same. Come back over the next few weeks to consider the ideas presented as you move toward achieving your real estate goals.

Step 1: Research

Remember the old adage "Measure Twice--Cut Once"? If not, don't worry, it just means making sure you’ve thought of all the things that could go wrong before you launch into anything. This is certainly great advice when jumping into the real estate world. For most of us, a real estate investment will be the single most expensive financial decision of our lives. Whether it's your first home or investment, or you're growing your portfolio, ya gotta do the research! So where do you start?? Well currently in Pittsburgh PA, we are under a "stay at home" mandate, so touring in person isn't possible. People are jumping on the internet instead. But they are diving in with a purpose. Both home buyers and investors should list those familiar questions we all learned in school: Who, What, Why, When, Where, How and don't forget How Much? Then research the answers and design a business plan when purchasing real estate as this helps you articulate a strategy.

If you're buying a home for yourself and/or your family, think about things such as your needs, budget, work commute, lifestyle, personal leisure activities, schools and other family influences, as these factors will assuredly come into play when choosing the property type and location. Sometimes it's a good idea to first ask yourself: "HOW do I want to live?" Not what you want to live in and where, at least not yet. Take time to consider how you live and then begin to think about the kind of home that fits your needs. For example, if you're single and successful, maybe you want to be living large in an urban condo. If you're head or co-head of household with kids, you may live more conservatively in a more suburban setting. These are just examples and everyone has their own lifestyles with their own variables. But you get the idea.

Some questions HOME BUYERS should be asking themselves:

1. How far are you willing to commute to work? Do you need easy access to travel hubs or do you work from home? Many of us are working from home, but that could change.

2. Work commitments: If you commute to see clients, do you need easy access to freeways to get your day going? Where are your customers and/or where are your other work related venues held? Or do you need easy access to the airport?

3. Education: How close are schools for the kids? How good are they? What about you? Continuing Ed??

4. Sports: If you're a sports fan, do you want access to these venues? Are there walking/running/biking trails and other fitness centers around?

5. What about leisure activities? Where are the parks, the resorts, shopping, restaurants, nightlife and other FUN spots?

6. Crime: Got a feel for local crime rates? That beautiful home might be a block away from some nasty statistics. Make sure you scout out the neighborhood in the daytime and then at night.

7. Time: How long do you plan to live in this home? What are your long term plans?

Ok, good food for thought for Home Buyers, but what about Real Estate Investors?

Likewise when buying a property as an investment, first ask yourself, "How do I want to live?" Are you ready to be a landlord? If you've never been one, research what that means as it could really change your life. With that said, you don't have to be a landlord to buy real estate for investing purposes. You could be fixing and flipping for example, or purchase and pass the day to day off to a property manager. But if you do want to be a landlord there are so many ways to accomplish that, such as renting a single family home. Or you may choose a multifamily property, either that you live in (aka househacking) or one in which you don't live in but manage locally or from afar. Or you may want to own and lease a commercial property. Bottom line: Determine what you want to do and how it fits either your lifestyle now or the life you want. Learn as much as you can about real estate investing so that you're ready for the challenge. Determine if you're buying locally or better suited as an out of town investor, or perhaps possessing both types of investments. Maybe you want to invest in multiple properties. Whatever you choose, will you be able to accomplish everything by yourself or do you need assistance? And if so where do you need help? Is it in mentorship, bringing on a co-investor, hiring a property manager, or someone to assist in acquisition? What type of property best fits what you are trying to accomplish? Is it a house hack, a flip, a single family, a multi-family unit, commercial property or something else? Yes I know, a mind boggling barrage of questions, but they need to be asked prior to actually looking at properties.

Some questions INVESTMENT PROPERTY BUYERS might ask themselves:

1. What kinds of return on your investment are you looking for? Do you plan to refi and use the BRRR strategy going forward?

2. Is this property going to cash flow? What is your per door goals?

3. What are the current rents and/or what kind of rents can I get in these neighborhoods for this particular property?

4. What will be my GRM (Gross Rent Multiplier)?

5. What will my expenses be?

6. Am I financing or paying cash and what is LTV (Loan to Value) and DCR (Debt Coverage Ratio)?

7. What would be my GOI (Gross Operating Income) and NOI (Net Operating Income) on a purchase?

8. What is the projected property value after repairs?

9. On a personal level, how far do you want to travel to your property? If out of town, maybe minimally or not at all. Again a personal choice. But do you have the right people in place to manage/maintain it should you go that route?

10. What kind of tenant are you trying to attract?

11. What area(s) is best to invest in? Where are the up and coming markets?

12. Where can I get a positive cash flow now and/or a great return when I go to sell it?

13. What kind of amenities are available for my renters?

14. What are the crime statistics? Same question that personal home buyers should ask themselves as one must think about any potential liabilities with investing in certain areas.

15. How long do you plan to hold this investment? When might you outgrow the building where your investment is located? Or when is it no longer profitable?

And so on, as there are so many more factors and calculations for a real estate investor to consider when comparing and purchasing properties.

Now add your own specific questions to those listed above. What I have discussed is just a taste of the research you must do to get started. Looking at homes or investment properties can be fun. But if you haven't done your homework and haven't answered those questions, that dream could turn into a nightmare. Define your goals and ask, ask, ask yourself and your advisors a lot of questions.

Most people don't go on vacation without some idea where they want to be when they "get there"... and it's no different when buying real estate. Don't say "Wow.. I have a week off.. I think I'll just drive somewhere and hope I have a good time". The results could be disappointing and even devastating! No different in real estate, so do your due diligence and Research!

Next up: Step 2. Get your Finances in order. - Stay tuned!!!