Real Estate Investing

A brilliant, funny, dynamic, amazing agent left our company several months ago.  Amy had earned her broker’s license, so was offered the opportunity to be the managing broker of her own office funded by outside investors.  Her business had dropped significantly while at my company - largely due to the sickly housing market - and she needed to find a stable source of income for her family.  Some investors offered her a broker position so she was paid a regular salary on top of the commissions she earned as a result of her sales.

Amy just stopped by for a visit and I bombarded her with questions about starting a new company.  My cup must be half empty today because I asked her if this is a BAD time to open a new office rather than whether it’s a good time.  Her answer surprised me,

“It’s not as risky now because business is slower, so there’s less to lose.  And I did ask myself, ‘What have I got to lose?  Why not?’”

Amy further explained that the challenge wasn’t in taking the risk, it’s getting a real estate approved office space before you can open.  She said it was difficult to get the letter from zoning saying it’s okay to have office in that location.  Then once you have that, you have to take care of everything including:  signage, obtaining a business license, have your insurance in place, ordering a phone, internet, and all your basic requirements needed to run a business.  And then you have to get furniture!!

Hoo Boy Online gives some tips about opening your own office,

Rent and start up equipment are required if you decide to open your own real estate office, and business education real estate grants can help with this. The cost of starting a new business may be more costly than you originally imagined. Starting your own agency is possible once you have been licensed. Providing you have enough money to tide through the start up phase, you will be able to concentrate on selling real estate and building a successful business that will continue to grow.

A common misconception is that you can get your real estate license and immediately open your own company.  In Tennessee that’s not true.  You must be an affiliate broker - similar to an apprentice-type situation - for a minimum of three years before taking classes and testing to be a managing broker.  You also have to earn many hours of continuing education (I believe it’s a minimum of 120 hours).  I’ve heard the state test if pretty daunting, but have never struck out on my own to conquer it.

There is some online information available about starting your own real estate brokerage firm, including this from Realtor.com.  But we’d be very interested if any readers have done this and can share their own experiences!

Photo from Luxury Home Digest.

Chicago Tribune editors must read this blog! Just kidding, their article about investing in student housing actually ran one day before my recent post on the topic.

In the news article, readers learn how Illinois-based Prime Properties increased revenues eightfold over three years and landed on the Inc. 500 list of America’s fastest-growing privately held companies. All this success came after the company broadened its spectrum to include student housing.

Indeed, money hasn’t been the problem for Prime Properties. After all, the company has 1,544 beds in 56 buildings worth $60 million and plenty of investors waiting in the wings at the ready. Instead, one of Prime Properties’ true challenges has been keeping apartments full despite the turnover each fall, the article states.

Chicago-based Scion Group was having such success in the student housing market that it recently teamed with ASB Capital Management. The joint venture agreement tripled the size of Scion’s workforce and bolstered its buying power. Scion’s main challenge: time.

“We are limited far more by time than anything,” says Scion founder and CEO Rob Bronstein. “A building with 500 students is a complicated business. Literally every day, decisions need to be made by the manager and owner.”

Scion’s strategy: Plan multi-million dollar capital improvements like eco-friendly upgrades, pool tables and plasma screen televisions, with cost spread out over at least about five years. Don’t overlook community colleges and junior colleges. These schools are also interested in having student housing within close proximity, a niche that helped Scion get its start. Above all, remember that money alone does not ensure success. Experts recommend doing the research, knowing the “lay of the land,” carefully selecting tenants and studying up on management skills.

So we’ve talked a lot in recent posts about investing in real estate, whether in student housing, for vacation rentals or as a full-time business. Regardless of your intent, there are some basic, universal keys to real estate investing success. It’s always better to learn from the mistakes of others; the 10 most common are as follows.

10) Fall in love with the property – Making a home transaction personal is a sure way to turn potential buyers off. When searching for property to buy, look for aspects that enhance the home’s marketability and value. Objectivity is key. This is strictly business. You are a business owner; act like one.

9) Fail to plan – Do this, and you can definitely plan to fail. Planning is key to successful investing, because you need to have info on the neighborhood market value, the condition of the house, etc. Above all, start with an investment plan, not a house. The house is a mere accessory to the plan. It is a numbers game, so find several houses that fit into your investment plan and wait for one to pan out.

8 ) Overpaying – This is where research and objectivity come into play. Without those two factors, it can be difficult to set a budget and create an investment plan and stick to those numbers. This can cause you to lose money on the deal long-term.

7) Go it alone – Novice investors may be surprised at how much networking is involved in the real estate investment business. Picture anyone and everyone you could possibly have contact with during the selling, buying and improvement phases of a home. Everyone from closing attorneys to inspectors to painters – you need to establish good relationships with at least one of each.

6) Get greedy – The fast cash promised over late-night infomercials is not the true name of the real estate investment game. This is a long-term investment. In some cases, like now, you may need to sit on property and rent it out for a while, waiting for the market to recover. A packed pipeline of simultaneous transactions can help pad the bank account, especially during slow times. Ultimately though, patience is a virtue, especially in this business.

5) Invest in Egypt – It is difficult to keep tabs on the happenings and market conditions surrounding your property if you live a gazillion miles away. For the sake of mere convenience – especially if the house is a real fixer-upper – invest within a 30-mile radius of where you reside. You will need to drive by regularly if the property is being renovated or rented, just to ensure that everything is running smoothly. If the home is currently vacant, drive-bys are good for security checks as well. With the cost of gas, far travels mean the cost of being a savvy property owner can escalate fast.

4) Miscalculate – Misjudging your cash flow or your estimates will cause heartburn every time. Underestimate your cash flow, budgeting for every single cost and fee you can possibly think of. Overestimate your estimates on cost and time investment. A good rule of thumb is to double the time estimate and triple the cost estimate to get property market-ready.

3) Ignoring Competition – You’re the best game in town, right? Wrong. Your competition matters. Learn from what they are doing. If they are holding open houses or buying in a particular part of town, consider doing the same. Ultimately, to avoid the lemming syndrome, think for yourself and do research on how to improve your business and your profit margins.

2) Underinsure – Whether it’s your health, your car, your life or your home, underinsuring is never a good idea. Disaster can strike at any time, so be proactive. Don’t forget about accident insurance for on-property incidents, as well as fire, natural disaster and even flood insurance, if applicable.

1) Moving too quick – Sleep on the deal overnight. Do plenty of research. This can help avoid costly mistakes #10, #8, #6 and #5. Foreclosures, divorces, deaths and down markets (buyer’s markets) are key ways to obtain a good real estate investment price. In all these scenarios, the buyer has the upper hand, so let sellers sweat a bit if it gets you a better deal.