Many investors today want to add real estate to their investment portfolios, but they don’t understand the complex nuances of real estate investing or how to begin the process.
Real estate investments are substantially different from any other types of investments like stocks, bonds, and CDs. It can seem overwhelming if you’re new to this type of investing.
Real estate investing doesn’t have to be difficult or scary. You need to run it like a business.
When done correctly, real estate investing is one of the safest and best long-term wealth-building tools in the world. When done wrong, it can cause you to go bankrupt and lose everything you own.
These are some tips that can help new investors establish themselves confidently and quickly.
Real estate investing is a business, and you should treat it as such. Develop a good business plan with realistic goals over one, three, five, and 10 years. Consider where you want to be in 10 or 20 years.
Credit and Financing
Check your credit report to determine your ability to finance investment property.
Most lenders require minimum scores from borrowers who want to buy investment property. Also, make sure that your total debt-to-monthly-income ratio is low.
It may make sense to pay down outstanding credit card debt or car loans in order to improve your debt ratios. You’re entitled to one free credit report per year from the three major credit bureaus, but they’ll only provide your history, and not your score.
Property Locations
Determine the best areas to look for properties. New investors often make the mistake of limiting their search to areas close to their home. However, you may find better deals further away.
You don’t need to live close to your investment property. Tenants aren’t going to call you when they need maintenance help or have emergencies.
As a serious investor, you’ll hire a property management company that is local, can manage your properties and their tenants well, and can respond to issues that arise immediately.
Look for Opportunities
Consider multiple sources for buying properties. The local Multiple Listing Service (MLS) is not your only option, and you don’t have to bang on doors in run-down neighborhoods, looking for distressed sellers.
Sometimes, you can find better deals on real estate auction sites, such as Auction.com. These sites make it possible for buyers to easily make purchases in locations outside of their immediate area.
Network with Other Investors
Talk with other investors about local real estate. Join a real estate club in your area (do a quick Google search to find them). Real estate clubs are great places to network with other investors, lenders, and repair service providers. You can often pick up helpful advice about your local market from other club members. Some communities offer courses on real estate investing through adult education or local real estate brokerages.
Partner with a Mortgage Broker
Find a good bank or mortgage broker in your area if you’re financing your investments. Realtors (real estate agents who belong to the National Association of Realtors and must adhere to a code of ethics) are good sources for recommendations, or you can ask other investors for referrals.
Do this before you start searching for properties. If you’re paying cash, you’ll need to prove you have the funds by submitting a recent bank or brokerage statement when you make an offer.
Educate Yourself
Spend time reading about real estate investing. A tremendous amount of free information exists online about real estate investing. When purchasing a book, look for those that offer practical guides on buying, flipping, renting, and selling properties.
Avoid books that claim you can make huge sums of money in 30 to 60 days as well as 25-year-old books detailing techniques that may no longer work. You can listen to audio books in the car and while at the gym.
Partner with a Realtor
Find a good Realtor to help you locate properties. Not all Realtors are experienced or even adept at helping investors. Understanding rental properties and this business takes a commitment to learning, and the best agent will understand many different facets of investing.
Before you hire a Realtor, ask about cash flow, appreciation, equity capture, and debt pay down. Make sure whoever you use to help you buy your investment properties is focused on this part of the market. You don’t want someone who does investment real estate part time as a hobby.
Learn from Experts
Learn from the best. It’s especially useful to learn from their mistakes so you don’t have to make them yourself. To achieve success, you need model to your investing decisions after what other successful real estate investors have done.
Take the time to learn as much as you can. Some investors spend more time worrying about the interest rate of their investments and earn a great return from it.
The harder you work and the more effort you put into your real estate investment business, the greater your ultimate reward will become over time.
These tips will help you get started, and before too long you’ll find that you’re able to make smart decisions and identify outstanding opportunities.
