Advice for New Investors
Whether young or old, the investment minded are intrigued with interest rates remaining low and a high demand in the rental market. However, now is a time for caution. Institutional investors are slowing down the pace they are buying at and even transitioning into selling off rentals. And while the percentage of people renting is growing and rents have steadily been increasing, there has been an expansion of new construction. While the pace of new construction has been less than originally projected, this is a point in time that it will start steadily be coming on the market. The effect will be to level off rents in the foreseeable future. Of course, this will vary from region to region and city to city.
Don’t Follow the Trend
Beginning investors often follow the current trend in real estate investing. That works fine as long as he or she gets in and out while the trend is still on the upswing. But it doesn’t work well when the person is one of the last ones in on the trend. While there are multiple variations to the two dominate investment strategies, the two strategies are hold to rent and flipping houses.
Before you buy, you must have an exit strategy. Without a solid exit plan, you can easily end up buying a highly discounted property that can’t be rented or sold at any price. It could be a major undisclosed defect, a murder that occurred or… There’s a very good reason that seasoned investors know that you make your profit when you buy the house. It’s because you have fully crunched the numbers and have a detailed plan of how the investment will make money for you. Without doing the due diligence, you have no exit strategy.
It’s very rare for a new investor to find success without first becoming educated about real estate investing. It’s not a simple extension of homeownership. Novice investors look at the market and think that it’s easy money. That renters always pay on time and that hot water tanks never spring a leak. Not true. Problems pop up at the most inconvenient times. During Christmas dinner or after you just sank your last dollar into a new rental.
Take the time and make the effort to join a local real estate club. Go to a bookstore or library to find real estate investment books. Not the books written by gurus claiming to have the secret to quick easy money. Find the books with the details to not only finding the best investment properties but also the details to performing due diligence and managing the properties. When you become educated, you’ll learn this is real work.
Join your local real estate club and attend regularly. You’ll learn from both local and national investors that are successful. You’ll learn what the coming trends are rather than the burned out trends. Once you think you have a solid investment plan, invite a couple of the most successful local investors to lunch and encourage them to rip your plan apart and tell you how they would do it instead. Then and only then are you ready to make your first real estate investment.
Please leave a comment if this article was helpful or if you have a question.
Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.