Model For Success received a request from A Student Of The Real Estate Game to delve into more detail on REFM’s Seven Elements Of Successful Real Estate Investment, so I am starting on that with this entry.
As a reminder, a month ago, we introduced the “Seven Elements” as a framework from which we can work to give structure to and increase the potential for success of our real estate investments.
The Seven Elements can be seen as steps to be executed in order, but when we are pursuing more than one investment at a time, we will naturally be performing more than one step simultaneously.
Element #1: Define your investment goal and strategy in detail and put it down on paper
If you have ever had what you thought was a brilliant business idea and it kept a hold of you long enough for you to commit it to paper, you probably remember that what ended up on paper was at least slightly different from what had first bounced into your head. The reason for the differences were that drafting and re-drafting the idea forced you to define and flesh out details that you were probably too excited to bother with when it was just a manic, shapeless notion.
It is the drafting and editing process that requires you to not only define the what, but also the when, why, how, and who. For example, if you want to acquire a value-add multi-family property, you need to begin to ask and answer dozens of questions, such as:
What is the property worth? What is the current NOI?
What is my strategy with respect to the unit renovation program? Who will perform the work? What will it cost?
Why should I acquire this property and not another one in the same neighborhood?
How much debt financing could I get to acquire the property? What will the interest rate be?
Who will I get to co-invest? What level of control will they require?
How long will I hold the property?
As you can see, once you become more serious about the thought of the proposed investment, you have a lot of work to do, and putting thoughts down on paper helps you to organize that work, as well as to stress test the attractiveness of the investment opportunity. If you like what you see after doing your homework, you can move forward with confidence.