From first deal to fifth property: a gameplan for investor growth

Real estate investing is a career path where the trajectory is often far from linear. Investors that are not prepared to experience a few ups and downs will struggle to find that longevity that most typically strive for. Every next step for an investor can seem daunting, but with a blueprint for sustainability coupled with a focus on the present opportunity, they can achieve the type of success that spans decades.

An investor’s mindset as it pertains to finding their first deal all the way to closing on their fifth property and beyond can be vastly different. As a broker, you can play a pivotal role in helping an investor understand what it takes to get to that level of success. It’s imperative to have answers for any questions an investor might have early in their career and more importantly solutions to problems that can allow them to attain their first deal, close their first loan, and propel the growth of their portfolio.

The first deal domino

For investors, securing their first deal can be an emotional process. There’s excitement, anxiety, uncertainty and a lot of hope and optimism as part of the equation as well. Managing expectations and steering your client in the right direction right out of the gate is important.

Introductory calls are important with your client. Understanding short-term and long-term goals as well as constructing a buy box are all necessary to establish when an investor is just starting. There are so many deals that will be on the market when they decide to enter the industry, but it’s finding the right first deal that counts.

While a sense of urgency can serve an investor later in their career, its patience in the onset that will pay dividends. A broker’s reputation can be on the line when working with new investors so being a trusted advisor matters in addition to eventual loan process prowess.

Mention to the investor that it’s a wise move to have multiple sources for notifications about potential deals. Using websites, social media, and real estate agent contacts are all prudent ways to find deals. After reviewing deals for a few days or weeks, the investor should know when the right deal comes across their desk and it’ll be time to act accordingly.

Managing a portfolio of one

Excitement and adrenaline can be prevalent while an investor’s first deal is in processing and eventually closes, but stress can take over immediately because the work starts right away. This is yet another instance where the broker can set expectations and act as an advisor to the investor to help them navigate new territory. Next steps will be dictated by loan type but fix and flips and construction deals will require contractors on speed dial and a clear plan and schedule of when and what work will be done to complete renovations or build.

Staying on time to complete the renovation in a timely manner is a must for investors. Most of these loans will have a 12-month term, but the longer they take with the renovations and the more payments they have to make prior to the sale, the less money that will be available to them in terms of profit at the end of the transaction. Most investors look for a renovation timeline of 4-6 months which enables plenty of time as a buffer once the deal is completed. This also allows for any unseen circumstances or mishaps that can occur during a renovation project. The last thing an investor wants is to be rushing their first project as it allows for mistakes or subpar craftsmanship. Brokers can check in on a weekly or monthly basis to ensure the first property in an investor’s portfolio acts as a springboard and not quicksand.

For a long-term rental loan, a broker will want to ensure an investor is properly marketing the property and secure a tenant to enable cash flow. However, this will be another instance where rushing is not advised. It’s always a good idea for investors to have a tenant screening process in place. Finding a tenant quickly can spark the cash flowing aspect of a rental property and the investor can start to earn passive income, but the right tenant can be in the property for years and the investor can have peace of mind and extra capital thanks to a reliable tenant that pays rent on time and is satisfied in the unit.

There’s also the angle of an investor becoming a property manager. Before moving on to their second property and scaling their portfolio, an investor must be able to juggle all the necessary responsibilities and that certainly includes being an attentive and responsive property manager while also keeping an eye on the market for the next opportunity. 

Capitalizing on opportunities to expand

While the goal for an investor is to establish a cash flowing portfolio with at least five properties, it doesn’t happen automatically just because they found a deal and secured one. While processes can help drastically, investing in real estate is rarely “rinse and repeat.” Every deal is different and with new opportunities comes new challenges to overcome and problems to solve.

One of the best ways a broker can help their clients expand is by connecting with private lenders that have the investor in mind and specifically tailor their programs to help investors flourish.

There are also savvy strategies such as the BRRRR method and cash out refinances. Both of these tactics take advantage of the client’s current holdings and allow them to raise capital from properties they already own. Rather than going out into the current market and potentially overpaying for a new property, an investor can make the most out of what they already have.

Buying at the right time can also pay dividends when an investor is trying to expand their portfolio. During the fall and winter months, there is a potential for a lull in the market. There is less competition and as a result a potential for lower prices for investors when looking to jump on a portfolio addition. It’s the perfect time to secure a property and renovate it and then get it staged and listed for spring. The spring buying spree seemingly happens every year, but with that comes a lot of potential buyers that miss out on their first and second choice and look to rent as a result. This is a great time for investors to have a rent ready property hit the market and attract a tenant still looking for housing.

Distressed markets are also an area for opportunity for investors looking to expand their portfolio. These long-term, heavy rehab projects can be ideal candidates for a private lender as well. The investor can buy at a premium, rely on contacts they established earlier in their career, and give a property a facelift that will eventually attract tenants. The key here is for investors to find distressed properties in markets where a resurgence is occurring. While the untrained investor or primary homebuyer may not put in the time to determine if a home in need of heavy rehab is in a rebounding market, an experienced broker and a seasoned investor can seek out these properties and make the most of these opportunities that the majority of the buying pool is overlooking.

Investor scaling overview

It’s important to stress patience and planning to newer investors when they’re trying to secure that first deal. Brokers who fail to advise their investor clients correctly in the early stages of their career can lose out on years of business if the investor flames out due to poor decision making.

An investor with an established buy box is much more likely to experience early success and form partnerships with those that were able to help them get that first deal across the finish line. From there, it’s about managing expectations and providing proven strategies that allow an investor to scale efficiently and cost effectively.

Remember, the BRRRR method and cash out refinances are popular because they work when done strategically. Always meet with a potential investor client early and often to lay out goals and establish what the first year of their new business venture should look like. Investors should respond well to this attention to detail, and it can serve as the first step in a longstanding, mutually beneficial partnership.

This article was provided by RCN Capital