How to be Successful in Real Estate Investing
You’ve probably heard that investing in real estate is a pathway to wealth. We might argue that it is the best pathway to long-term wealth. Whether you purchase property, flip it and sell it, or keep it and rent it out, you’re almost always going to earn a profit by investing wisely.
There are several ways to invest in real estate, but, as we always say, the best policy is to buy and hold. To help manage your investment, you could hire a property management service or work jointly with a partner. If you feel like you’ve got it handled, then you can manage it yourself — just be mindful of all the financial responsibilities you’ll hold. No matter which way you choose to manage your investment, you’ll want to follow these key tips whether you’re an experienced investor or a first-timer.
Understand Your Market
Before you buy, you want to understand your market by doing research. You probably think we mean the real estate market, but we actually mean the rental market. Trying to time the real estate market for either a buyer’s or seller’s market where you can maximize your ROI isn’t a winning strategy. Instead, it’s all about buying for potential tenant demand with the knowledge that you can always refinance later on. Your investor-savvy Realtor® will ensure you negotiate for top value and margin, but that margin comes only from knowing what it will flip or rent for.
You’ll want to look at top rentals in your target area. Which neighborhoods have the lowest list time? Which neighborhoods demand the highest rents? Which neighborhoods have the longest lease terms? A reputable property management company can also help you identify these. You’ll also want to consider what upgrades and renovations you might need to make to ensure your property attracts the right tenants. Whether you plan to rent or sell, your strategy should include what to put your money toward after closing to justify higher rent or selling price and to force appreciation where you can.
Choose Your Investment Wisely
After you’ve done the research and understand your market, the next important step is to begin to search. Be on the lookout for red flags and anything that has the potential to tank your investment. Understanding all the costs associated with buying is a must and should be part of your budget plan and strategy.
We also create an Investing Opportunities Spreadsheet that outlines the estimated costs like down payment, taxes, and insurance to pinpoint your estimated monthly payment. The sheet then automatically compares that to the potential rental rate of the property so you can immediately see if the cash flow opportunity is the right one for you.
Remember: you can invest for cash flow or appreciation or both, but you need to know your goals so you can invest wisely.
Don’t Get Emotionally Invested
Some investors fall in love with a property and its potential and accidentally forget the real purpose behind investing in real estate. Remember the property is a means to an end for wealth-building and should be treated like any other investment type: thoughtfully and intentionally. If you get caught up in the process, it could lead to you making non-strategic upgrades and renovations that you won’t be able to see return on. It’s about building your wealth position, not making decisions that don’t make cents — pun intended.
Don’t Neglect Your Property
On the flip side of some investors becoming attached emotionally to their investment, some investors neglect the property entirely. Deferring maintenance decreases property value over time, sinking your investment and tanking opportunity for appreciation. This also leads to a decline in the property’s overall appeal to buyers and renters. A run-down property can’t be listed for as much—rent or sale—and attracts less desirable tenants and buyers.
Hold Cash Reserves
Keeping healthy cash reserves for your property will make you the most prepared real estate investor. We recommend at least six months of operating expenses for each property you hold. This can help in the case of an unexpected tenant vacancy or abandonment. It can also be used for habitability emergencies like a pipe breaking in the winter or the A/C going out in the middle of summer
If you can, redirecting your cash flow proceeds each month into a separate account will also help you build this reserve fund. Setting this up as an automatic practice will set aside funds for improvements you plan to make in the future to add value to your property or for a down payment on your next investment.
Real estate investing can be challenging and requires expertise, strategy, and planning. Choosing your investment wisely and being knowledgeable of your market will give you a great start to your investment journey. Reach out to us if you ever need real estate investing advice. Our first-hand knowledge of investment real estate, the importance of cash flow and ROI, and the trends in the rental and leasing market allow us to help you on your path to wealth.
