Real estate is a proven, time tested method of investment. It can be a lucrative, worthwhile investment that allows you to create long term wealth. It can be overwhelming for a new investor for where to start or look. So here are 10 rules about real estate investing that you should always keep in your mind to increase your chances of success.
1. Know your goals before starting
Different people have different goals and objectives within real estate investing. Everyone wants to be successful with real estate investing, but you need specific goals with a clear road map to always move in the right direction. You are more likely to reach your long-term goals if you divide them into smaller milestones. These goals could include buying a certain number of properties in a time frame, or certain type of properties. If you have goals clearly spelt out in your mind, you will be more focused and more likely to succeed.
2. Absorb as much information as you can
Knowledge is the bedrock of success they say, and this is true about real estate investing. If you do not study about your field, you will always remain dependent upon others to give you advice. Educate yourself as much as you can by reading articles, blogs, realty magazines, and reports on real estate investing. You will become familiar with all the terminology and concepts that will make you feel confident when you are ready to take action. Becoming knowledgeable also helps with your networking skills, other investors will be happy to see that you know the correct terminology.
3. Make a promise to yourself to never speculate
Real estate investing is very different from stock market investing where you can speculate and earn big rewards or losses in a short time. Do not expect value appreciation in a quick time period and never purchase a property until you have carried out due diligence. As an investor, you should always keep your long-term perspective in mind.
4. Pay attention to cash flow
Positive cash flow is the flesh and blood for any real estate investor. Most of the real estate millionaires around the country have been able to amass wealth by investing in the right properties that produce positive cash flow. It is this cash flow that covers not only your repayments but also all expenses related to maintenance and repairs. The higher the cash flow, the better it is for you as an investor. However, you will learn to pick and choose properties only with some experience. Do not follow the advice of others like realtors and developers before investing in a property, please carry out your own due diligence.
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5. Determine which housing market is right for you
There are hundreds of housing markets across the country. Some of these markets are traditionally considered hot with investors ready to pounce on properties in these areas in the hope of high return on investment. However, you should be careful as an investor to decide on the merits of location and price of the property rather than buying a property just because it is in a housing market. Right property at the right price and time matters more to you than any property in each housing market.
6. Take the location of your investment property into account
While being market agnostic is a good advice, you must shortlist some cities and towns for the purpose of investing. For these areas, you must study everything from the housing market conditions to the economy and the job scene to make assessments of rental returns on your properties. You also need to do complete study of various neighbourhoods on different parameters like schools, amenities, crime rates etc to take investment decisions wisely. Once you know the potential of different areas, you must search for attractive deals in these places.
7. Make your portfolio diverse
Once you have identified the housing markets where you would like to invest, you should focus upon one market at a time. After acquiring 2-3 rental income properties in one market, it is prudent to move on to your next housing market rather than buying more in the same area. It is like putting all your eggs in a single basket and losing them all if the market stagnates or loses its charm because of extraneous factors.
Real estate markets around the country behave in an independent manner because of their unique circumstances. This is the reason why your investment remains safe even if one or more housing markets start to perform badly over a period.
8. Take help from property managers
It is all right to manage the affairs of your properties when you are starting out. But when you have a portfolio consisting of many properties, you can manage them well by hiring the services of professional property management companies. These companies not only save your time and effort but also allow you to focus upon your business. You cannot afford the luxury of screening your tenants or attending to their complaints if you really want to become a successful investor.
9. Invest directly to exercise full control
Real estate investing is an investment where you need to be in full control to obtain desired results from your investments. Investing indirectly through partnerships or real estate funds does not give you full control over your decisions. You must remain dependent upon the knowledge and advice of others running the trust or fund for your investment returns.
10. Use money borrowed from other sources
The biggest advantage of real estate investing is its potential to leverage money from other sources. You can finance your purchase through others’ money and exercise full control over your properties. In fact, you should borrow other’s money as much as possible if you are certain about positive cash flow from your investments. This means that you are leveraging debt that someone else will pay off for you.
Written by Owner of Wealthup.com, Joshua Dayrit, 22 year old successful real estate investor.