Becoming a real estate investor is no different from starting any other investment in any market; it requires organizational, managerial, and personal skills. Taking the path to becoming a real estate investor is not a simple one, because all needed skills require professional experience or purposeful learning. The first steps into a real estate investment are the most important ones because they set a standard and an expectation level for its success. Getting and staying organized is a must in real estate investing because this is the only way to success in the real estate business.
People will always claim that real estate investing is easy and it will surely make you wealthy no matter what, but that is entirely misleading. Planning, focusing, and being organized are basic traits of a successful real estate investor, and not having or putting these skills to optimal use will result in setbacks along the way.
A real estate investor needs to be organized in two ways in order to succeed. The first thing that needs to be done is building an organized understanding of the real estate investment and its implications. The second level of organization relies on the first and basically involves having the investment organized in terms of paperwork, legality, and taxation.
Related: 6 Tips on Becoming a Real Estate Investor on Your Own
Basic Organization for a Real Estate Investor
Make a Plan
The first step that any real estate investor must take is drafting a structured business plan. A plan serves the investor in a way that help him/her create and achieve his/her short-term and long-term goals for the real estate investment. A business plan also gives the investor a focus on the set goals of the investment and prevents getting delayed by any minor stumbles along the way. For a real estate investor, especially beginners, it is important to have a plan to stay organized and on track.
Understand the Market
A real estate investor who decides to purchase rental properties without understanding the local real estate market will likely suffer many setbacks. An in-depth knowledge of the market is needed to succeed by studying mortgage rates, rental income, occupancy rates, and expenses related to the investment property. This allows the investor to plan for the future, predict changes in the current trends, and create further money-making opportunities in the future.
Beware of Risks
Each investment in any market is accompanied with a risk factor that threatens to leave investors with a negative cash flow. Even in real estate investing the risk is existent and inevitable if ignored. This is why it is important for real estate investors to understand the risks and have basic knowledge of how to deal with them should they appear. Understanding risks gives the opportunity to avoid them, and this is the best way to be organized to stay ahead of the game.
Related: 5 Skills Needed for Real Estate Investing
Organize Your Investment
Real Estate Investor Documents
A real estate investor will be dealing with multiple properties at some point in the form of investment and personal properties. Owning a rental property means that an investor has to deal with a lot of paperwork that will need organizational skills. Documents can include closing documents, tax forms, insurance forms, title deeds, rental agreements, and expenses receipts. This is all very hard to manage if an investor doesn’t develop a system to keep everything organized. Documents that are lost can cost a real estate investor time, money, or even legal implications.
The first step to organize your real estate investment documentations is to develop a structured system. A filing system for documents will make life easier for the real estate investor in so many ways. Creating a folder that has details of every aspect of the investment property that was purchased is one solution. A property folder would contain the following:
- Photos of the property before and after purchase in case of renovations.
- Property purchase records that specify the agreement to purchase the real estate property and how much was paid by the investor.
- Rental income recipes organized by year and month.
- List of renovations made and the exact amount of money that was paid to make them happen.
- Monthly property management statements that are being paid either to a professional property manager or in another form.
- All bank statements relevant to the income property, which includes monthly mortgage statements and mortgage interest.
- Property tax receipts that were paid.
Having this structure of dividing all aspects of the investment into smaller categories makes it easier for the real estate investor to track all profits, expenses, and documents. This type of organization is important when it comes to dealing with tenants or buyers of the investment property. It will help the investor give a proper evaluation based on the investment paid initially.
Get a Receipt Book
A real estate investor will have to deal with many expenses or incomes, especially if the property is being rented to tenants. Having a record of all expenses no matter how small they are will keep everything working like clockwork; not doing that over the long term leaves the investor unaware of the many expenses that were paid in the past. The record of all income such as rental income paid by tenants gives the owner a way to track the operation of the real estate investment. Expenses and income are there to help you decide if you are in the positive or negative side of cash flow when it comes to your rental property.
It is also possible to have a receipt book done electronically by creating a separate bank account for the investment. A real estate investor would do a better job if he/she sticks to a rule of not using a personal account for the expenses and income until the end of the month. Using that account for all expenses such as mortgages, repairs, and more keeps everything in track through that account.
Related: 4 Factors That Result In a Negative Cash Flow Property
Conclusion
There is no denying that the path of becoming a real estate investor is filled with opportunities. However, these opportunities don’t just happen for the sake of happening. Each and every investment that has seen a level of success has had good management throughout. The same applies to real estate investing. A real estate investor should always stay organized, and thus many would argue that the largest factor to success in real estate investments is the organizational skills of the real estate investor.