Many people succeed in using real estate investing to build the life they want. If this is something you are interested in, HomeVestors® is providing this guide for you.
HomeVestors® is a real estate investing franchise. The aspects you will read in this guide are part of the business model that our franchisees follow to build their careers. We will talk about HomeVestors®, but we also wanted to talk about real estate investing for beginners in general, so you can get an idea of what is involved in pursuing this type of opportunity.
Let’s get started.
Creating Your Investing Profile
There are many ways to invest in real estate and the path you choose has a lot to do about your investing profile and the goals you have for this work. If you are going to work this business full-time, you will have a different approach than if you plan to work it part-time while earning income from other sources.
The amount of time you plan to commit to real estate investing will determine how much debt you can comfortably manage. Start by mapping out a one to five-year plan for your financial picture. As you continue with this guide and make decisions on the type of real estate options you will pursue, you can adjust your financial picture.
Overview of Real Estate Investing Opportunities
When considering the opportunities in real estate investing for beginners, there are both active and passive roles in the investment. You will need to decide if you want to be hands-on with your investment (such as with house flipping) or hands-off (such as with REITs). Here is an overview of the more common property investments for beginners to consider, with some extra links on topics we have covered in further detail:
- House Flipping
Perhaps the most recognizable form of real estate investing is when you purchase a property that needs renovations, fix it up and then sell it for a higher price. You need to know what you’re doing to be revenue-positive in flipping houses and that means having a solid budget. You need to evaluate what work you can do yourself and what services you need to hire. In addition, there are often hidden costs that come with house flipping so your bank account will need enough money to cover unexpected expenses.
- Investing in Rental Property
When you purchase a property to rent out to tenants, the goal is for the rental income to pay all of your expenses plus provide you some extra as a profit. Another option for a rental investment is to purchase a duplex where you can live in one part of the property and rent out the other part, so you basically live for free. Knowing how to evaluate a rental property is important to making this investment pay off.
- Appreciation Investment
A similar real estate opportunity to flipping houses is to make an appreciation investment. This is when you purchase a property and hold onto it until you can sell it at a profit. There is no renovation work required – you are just sitting on the location until it appreciates.
In wholesaling, you purchase a property that has upside potential and immediately sell it to another investor who will likely complete a rehab. It is important to have a network of buyers for this type of investing for success.
- Real Estate Investment Trusts (REIT)
This is the first of four options in the area of investing with others. With groups, you are often more hands-off in the transaction, allowing you to still invest in real estate but have fewer or no project management requirements.
When you are investing in REITs, you are buying into a company that owns a real estate property where rent is collected. Examples include shopping malls, medical centers, and apartment buildings. The income is paid out to the REIT shareholders. There is a legal requirement of how much income must be paid out in this investment trust and it is usually at least 90%.
Shareholders can also sell their shares at a higher price to earn income.
- Real Estate Investment Groups (REIG)
Similar to the above, this is a group investment opportunity. You combine your money with others and purchase a property to renovate or sell and split the profits. Another form of REIG is financed properties where you might take on administrative tasks such as property maintenance. A REIG is a less formally organized group so be sure you set clear terms with your partners.
- Real Estate Crowdfunding
Crowdfunding is another method of pooling money for a real estate investment. In this situation, you invest in real estate projects where buyers are seeking loans. You earn money through dividends or by redeeming shares.
- Real Estate Syndication
In this scenario, investors pool money to buy larger real estate projects. You can earn money through the appreciation of real estate assets and also through rental income.
- Real Estate Franchise: HomeVestors®
A HomeVestors® franchise is a good option for real estate investing for beginners. HomeVestors® franchisees work with people in difficult real estate situations and help them sell a challenging property by paying them cash and closing quickly on their houses. Franchisees renovate and sell the homes to new buyers or hold them as rental properties.
With the HomeVestors® franchise, you step into a business model with the training, leads, and professional contacts necessary to navigate real estate investing more easily than trying to figure it out on your own.
Explore the Real Estate Investment Strategy That’s Right for You
You want to learn as much as you can about how each real estate investing opportunity works. In addition to reading through the information in this guide, connecting with people in this line of work is another choice in how to learn about real estate investing.
Some suggestions include:
- Other Investors. Reach out to other active real estate investors and ask how they got involved in this line of work and what advice they have for you. These are people who are in the industry today and they have direct knowledge of how the market works. If they are willing to share their time, it is an invaluable resource.
- These might include reputable lawyers, accountants, property managers, lenders, or other businesspeople who have specialized knowledge and who want you to be successful.
- . A mentor is someone who can provide advice or feedback in support of your real estate investment pursuits. They may or may not have a background in the industry, but they are people you can collaborate with during your initial stages.
Advisors can help you develop the criteria for building a real estate investing business including deciding how much money you are willing to commit. It can be a balancing act with the amount you are comfortable risking while still meeting your current financial commitments.
Another decision to consider is the location and size of the property where you plan to focus. Choose what you feel is the better fit for your style, your finances, and the return you are expecting. Are you going to be an active investor or is a passive role more amenable to your situation? Will you stay in the area in which you live or are you looking at a nearby community with potential?
Talking these things over with advisors or a mentor can help you focus on being patient for the right properties and less reactionary because you are eager to get started.
How to Generate Leads
A key element of property investment for beginners is determining how you will get leads or find out about properties that meet your criteria. If you are working the business part-time, you will likely have a different lead generation strategy than if you are making this a full-time commitment.
Some of the ways you may find leads include:
- Searching online websites such as Craigslist or Zillow
- General advertising that directs you to purchase properties
Finding leads is critical to your success in real estate investing. At HomeVestors®, we have developed an active lead-generation process that is efficient for our franchise owners. Our franchisee network also serves to help generate leads for each other.
We have heard stories from people who thought they had a good lead from a “source,” and it turned out to be a devastating situation. You have got to trust the sources you are relying upon for good leads. Once you put money down, it can be very difficult, if not impossible, to get it back if the opportunity turns out to be less than honest.
How To Finance Purchases
It is unlikely you will be able to self-finance every real estate investment, especially if you have more than one operating at the same time. Even if you can self-finance, you do not want to be over-leveraged or be too tight on cash flow. Therefore, it is important to know about financing options for your real estate investing business.
Home Equity Line of Credit (HELOC)
A HELOC is a combination of borrowing against the equity in your home and applying for an open line of credit. You can usually access a larger amount of funds with adjustable interest rates, but you are putting up your home as collateral and risk losing it if your real estate investment goes poorly.
This option enables you to collect money from a group of individuals who contribute to your investment personally. Contributors earn a percentage of your project depending on how much they finance. You should have a legal structure in place with this option.
If you do not qualify for a bank loan, private lending may be your solution. Private lenders typically impose a higher interest rate than you could access with a bank. Be sure you understand the rate and fee structure, repayment options, and how much cash you can access at one time.
A self-directed IRA is an individual retirement account that allows you to take out money for specific investments, including real estate. The important thing to know here is that when you use the money for this it may impact your taxes. Plus, you are also taking funds out of your retirement plan, so there is some risk there as well.
Exploring the HomeVestors® Franchise Option
If you have seen the “We Buy Ugly Houses®” billboards or advertising, you know a little of what HomeVestors® is about. A HomeVestors® franchise can help manage risk and make it easier and faster to build a career in real estate investing. Here are some of the ways we do that:
Most of our franchisees join HomeVestors® with no prior real estate experience. Through our comprehensive real estate investment training on how to buy, rehabilitate, and sell distressed properties, we provide you with the tools you need to feel confident in your real estate business venture.
As a new franchisee, you are also assigned a personal development agent, an established, local real estate investor. The development agent is there to help you learn about the industry and develop the skills you need to be successful. This can involve communicating effectively with home buyers and home sellers, finding reputable contractors in your local area, and learning how to market and sell your properties.
When you work with people who are connected to the market, and who care about your success, you can sidestep some mistakes that are common with real estate investing for beginners.
Being able to finance a property to fix up and sell is a key component of success in real estate investing.
HomeVestors® has a proprietary lending portal where you are matched with reputable, hard money lenders who are interested in funding your investments. Lenders will offer you terms and conditions for the loan which you can easily compare in order to make the best decision. You can leverage the reputation of the HomeVestors® in your loan application. This streamlined process allows you to get in on the best real estate deals before someone else does.
Innovative Valuation Tools
A critical element of making a profit in real estate investing for beginners is the ability to concisely estimate the cost needed to improve the property as well as the potential listing price when you are ready to sell.
HomeVestors® expedites this process with a propriety valuation program called ValueChek which can automatically estimate the costs of more than 80 different repairs while adjusting for local rates on labor and materials. It can also help set a listing price when you are ready to sell while comparing similar homes in the area. ValueChek is an app that is only available to HomeVestors® franchisees.
Marketing: You and Your Properties
Real estate investing for beginners requires a good understanding of how to market yourself and your flipped properties. If no one knows you buy homes, it is hard to attract new business. If no one knows you have a home for sale, it is hard to make a profit. Marketing is critical in the real estate investing business and HomeVestors® has a niche in the industry.
As a franchisee, you are instantly connected to the “We Buy Ugly Houses” advertising. Homeowners with homes who are looking for a cash deal are familiar with this promotion. HomeVestors® uses a variety of marketing tools to generate leads and promote franchisees who are looking for properties to purchase. We also have a strategy for property sales.
HomeVestors® offers two types of franchises. The full franchise is run full-time and has a total initial investment of $135,000-$461,250. The associate franchise is run part-time and has a total initial investment of $89,000-$390,250. The variables depend on the number of properties purchased and advertising dollars committed. Generally, the franchisor asks for you to have $150,000 in liquid capital to meet the financial requirements.
For your investment, HomeVestors® provides you with the training, operation systems, marketing direction, and support to build the foundation for your business. You are immediately connected to a franchisee network that is actively involved in real estate investing versus having to build that momentum on your own.
Real Estate Investing for Beginners Starts with HomeVestors®
Our franchisees purchased over 9,300 homes last year and most got their start while brand new to this industry. HomeVestors® makes building income in real estate easier and provides a faster road to success than trying to figure this out on your own.
Contact HomeVestors® for more information on the franchise opportunity and let’s see if we’re the right fit for your business goals.