Businesses are often compared to machines. It’s a tired metaphor, but it doesn’t make it less apt. Machines rely on many moving parts to function, and it is true of investing in real estate, too.
Unlike businesses, these parts don’t come in the form of jobs to be filled, departments, or complex infrastructure. Most of the time, the “parts” that a real estate investor’s business needs to function rest solely in his or her hands.
Even passive real estate investors are responsible for the moving parts of their investment portfolio. Memphis Invest learned long ago that addressing those moving parts with investors honestly, from the beginning and including a willingness to tell some investors that they simply were not ready to move forward, was the only way to build a Turnkey company. Why? No matter how passive an investment is or an investor wants to be, the investment success or failure rests solely in their hands.
That’s a lot of pressure!
For real estate investors, there can be a lot of moving parts to execute the perfect deal. Things need to run smoothly day-to-day to ensure that cash flow is steady and high. But what exactly are all of those moving parts? Can one person possibly keep up with them all?
5 Key Parts to Every Passive Real Estate Investment Business
Obviously, it would be a challenge to invest in real estate without financial resources. Thankfully, you don’t have to start rich to invest. There are plenty of avenues to invest in real estate without a ton of wealth. Private money lenders, bank loans, partnerships, and crowdfunding all offer alternatives to using your own capital to fund your investments.
Remember, one of the biggest advantages to investing in real estate over other investments is leverage—you don’t have to rely on your own money to make things happen.
A Solid Network
Networking is one of those buzzwords that gets thrown around in the business world, but it’s a little difficult to nail down just how to do it and what exactly it means. For any professional, real estate investors included, networking is about building a web of associates—friends, colleagues, and acquaintances—so you can exchange information and call on your contacts in times of need. Ultimately, we network to further our careers.
What every investor needs to understand is the value of their network. There are so many people involved in the investment process: realtors, contractors, accountants, home inspectors, property managers, lawyers, and insurance agents, just to name a few. It’s good to have people who can connect you to the best people in the biz.
Real estate investors can have all the money and connections in the world, but they’re up the creek without a paddle if they don’t know what they’re doing. Foundational knowledge is so necessary here. Knowing your strategy, knowing what you can and cannot do, having realistic expectations, anticipating setbacks, preparing for expenses—just being knowledgeable and prepared about what you’re getting into—is crucial to your success.
Maybe you get there with a mentor. Maybe you just do a look of reading and research. Maybe you trust real estate investing experts and their articles and blogs like this one. No matter how you learn, it’s absolutely necessary not to go in blind.
Before you even start, understand that systems are absolutely key. Some people are naturally organized. Some are not. No matter what camp you fall in, you need to be on top of organization. There is so much time wasted when you don’t know where the right documents are! It doesn’t matter if you’re looking to get approved by a bank or dealing with your taxes. If your systems are doing the heavy-lifting, it frees up room in your head to focus on strategy and planning.
If you don’t prioritize your systems from the beginning, you’re going to find it causes you a lot trouble down the line!
Trusted Property Managers
Lastly, you need people that you can rely on day in and day out. While some real estate investors try to go at it alone, they quickly find that they have limits to what they can do: it becomes hard to scale your portfolio when you’re landlording!
Excellent property managers separate investors from the pack. They elevate run-of-the-mill properties to something special. They ensure not only that your properties are taken care of, but that you tenants are happy and satisfied, which decreases turnover and increases your income.
If you have property managers that you trust, you have endless opportunities to grow your investments.