Tips for Novice Real Estate Investors
Novice real estate investors routinely make the mistake of engaging in real estate investment without a complete understanding of how it works, nor how to make it work successfully for them.
Well, the good news is that it's not rocket science.
In fact, if you have ever purchased a residential property then you are already acquainted with the basics. Real estate investment involves an offer and acceptance, escrow, inspections, transfer of money, title, and ultimately possession.
Fair enough. But it's also fair to say that this where novice real estate investors tend to make a mistake. They incorrectly hold to the notion that buying rental property is not unlike buying a house. But nothing could be further from the truth.
Real estate investment does not require a 200 IQ to engage successfully. But bear in mind that it is a specialty that requires a clear understanding of some nuances and principal elements.
To help you get started, I've listed five which I consider to be the most essential.
Correct Your Concept
Foremost, strike the thought that making an investment in rental property is similar to buying a house. There is a conceptual difference between the two types of property that you must understand and acknowledge right in the beginning.
A house is where you live and raise a family. A rental property is how you plan to make money to help pay for the house and provide for your family.
Began by looking beyond curb appeal. Don't pass up a potentially sound real estate investment merely because you didn't like it's exterior or neighborhood setting. Real estate investing is foremost a business that surrounds numbers and financial potential. So give the property a chance before you rule it out based merely upon a drive by. Focus on the numbers, and regard rental income property appearance only to the degree that it might impact the bottom line.
As one very successful real estate investor once told me, "Only women are beautiful, what are the numbers?"
This must become your way of thinking about real estate investment property if you plan to succeed.
Develop Meaningful Objectives
Develop a plan with stated goals that frames your investment strategy. Having meaningful objectives is one of the most important elements of successful investing. Here are some suggestions to get you started.
- How much cash are you willing to invest comfortably?
- What rate of return are you hoping to generate?
- Are you expecting instant cash flow, looking to make your money when the property is resold, or merely looking to achieve tax shelter benefits?
- How long do you plan to own the property?
- What amount of your own effort can you afford to contribute to the day-to-day operation of running the property?
Research Your Market
Always do your homework. Before you make any real estate investment decision, invest the time to research and learn as much as possible about rental property values, rents, and occupancy rates in your local market area. There are a number of helpful resources where you turn to collect this type of data.
- Qualified real estate professionals
- The county tax assessor
- The Multiple Listing Service
- A property management company
Run the Numbers
Real estate investing is about numbers. When you make a real estate investment you are buying cash flow.
It makes perfect sense then for you to always run the numbers on any rental property you are evaluating. What I'm suggesting, however, is not merely to accept the property data presented to you by a seller or real estate agent.
What I'm suggesting is that you make the decision to invest in real estate investment software so you are amply prepared to run and validate the numbers on your own. After all, it's your money to gain or lose on any investment decision, and you don't want to sit in the dark and let someone else tell you which rental properties are profitable. The more control you have on how your money gets spent, the better your chances to protect it.
Select a Qualified Professional
Real estate agents have proven to be a benefit to investors. They can acquaint you with local market conditions, recommend properties that meet your investing objectives, and discuss strengths and weaknesses about rental property performance to assist your analysis.
Okay, but if you choose to work with a professional, don't base your selection upon panache or popularity. Neither agent branding nor a Mercedes ensure the sound knowledge about real estate investing you are going to require.
During the interview process, discover what the real estate agent knows about real estate investing. Do they actively service real estate investment property? Are they amply prepared to assist you with the numbers? Can they present you with a real estate analysis other than that they collected from a seller or listing agent?
Finally, gauge their motive. Naturally, they are in the business of making a commission (understood). But the last thing you want is to work with an agent that would cast your financial interests under a bus if it means to promote their own.
About the Author
James Kobzeff is the owner/developer of ProAPOD Real Estate Investor Software. He has been a real estate professional for the past thirty years and routinely writes articles on the topic of real estate investing in order to share his experience with others.
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