Top 10 Tips For Real Estate Investors



Contrary to what others say, real estate investing is not a get rich quick scheme. Successful investors start out small to build an investment empire over the long term.

Tip #1. Start out as a lender rather than as an owner. If you’re not highly knowledgeable about the real estate business and you have money to invest, start out by lending money to other investors with a long and proven record for earning profits. You can learn how they succeeded as an investor as well as be comfortable that your money is secured by real property when you have a first mortgage.

Tip #2. When outright buying property, it’s crucial that you fully understand the market. Not just the current real estate market but also the entire economic market. Know what the current and future job prospects are for the area. Is the local market dependent on manufacturing jobs that might be outsourced or on tourism that will remain vibrant? Is the market susceptible to bad weather such as hurricanes or tornadoes that require special and costly insurance? As an investor, you need to know the entire market, not just the hot real estate trends.

Growing Property Wealth

Tip #3. Fully understand how to leverage your money. Real estate is about securing loans with real property. Instead of putting your money into a savings account or CD that pays a small percentage of interest on the small amount invested, with real estate you can leverage other people’s money to earn profits on $9 invested instead of $1 invested.

Tip #4. Always account for your carrying costs. In times of rapid appreciation in value, it’s common to get wrapped up in only the purchase and potential resale price of a property. Even in a fast growth market, it’s possible to lose money by acquiring a property with high holding costs when you can’t resell quickly.

Tip #5. Considerreal investing as a second career. Consider partnering with a reputable general contractor to flip houses. Instead of being the main partner, take on the role of the silent partner. It’s not uncommon for the money partner to finance the deal for a full 50% of the profit but not be the main decision maker.

Tip #6. Have a game plan. There are an endless number of ways to invest in real estate from landlording to flipping to hard money lending. You can’t be an expert at all of them. Make a plan for how you’ll invest and avoid temptation to try the next shiny object.

Tip #7. Be prepared to change your investment strategy. In consideration of tip # 6, the market does change. Stay current with what is happening in the market so that when major changes happen you can quickly get up to speed with the most profitable ways to invest. Back in 2010, the big money was being made flipping foreclosures but today there is more money to be made in owner financing due to the difficulty buyers are having obtaining bank loans. Did you make the change as an investor?

Tip #8. Understand that real estate is NOT a liquid investment. Once you buy a property, you own it. If you make a bad investment, you might not be able to sell it for any price, much less for a profit. Buy a property with a major hazardous waste problem and you might own it for life.

Tip #9. Make sure you have cash reserves. If you own your own house or have owned any property for a period of time, you know that the unexpected costs come up. A furnace goes belly up, a dishwasher quits, or a toilet overflows to do extensive water damage. It’s never pleasant but unfortunately these things do happen.

Tip #10. Buy cash positive property. Unless you can afford to lose your money, never speculate on real estate. Property that you invest in should be cash positive both via buying below market value for a flip and as a rental income if you have to rent. This is not an either/or equation. Any property you invest in should be cash positive for both scenarios. That’s your Plan B.

Please leave a comment if this article was helpful or if you have a question.

Brian KlineAuthor 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.

Comments

  1. Question: I am curious to know if there is a “rule of thumb” for residential real estate where the rent s/b X% of the current market value? I understand property values and rents will vary depending on local areas, but is there a conservative number as a percentage that one would expect to see at least as a baseline, where it would vary up or down depending on local conditions? Another question: where would I go to get a complete picture of the local real estate market conditions, including number of homes for sale vs sold in the last year, average length of time listed before sold, vacancy rates, rental property, etc.? Where would be the best place to start?

    • Brian Kline says:

      Thanks Bill,
      I suggest that you find a good realtor in any local market you are interested in. He or she should have the local information you are looking for.
      Brian Kline

  2. I certainly agree with the opening statement; not a get rich quick scheme AND in my books it’s about the only way to get rich with some degree of certainty if you follow a well thought out plan. For what it’s worth let’s bring it right down to basics. Here is our (Australian) formula:
    1) Know where you are at
    2) Know where you want go
    3) Device a Plan/Structure
    4) (often forgotten) Check that one is prepared to do what it takes to follow the Plan to reach the Goal….
    Simple and so worthwhile.
    Regards Uwe Jacobs
    Director of Property Friends Melbourne / Australia

  3. It is really not necessary to get institutional financing to buy investment properties. You have to jump through a lot of hoops and pay high loan fees. Plus you are usually personally liable for the loan.

    Instead, you can buy with seller financing when you are dealing directly with the owner of the property. You will often get a much better interest rate and term too. If that’s not available, it is also easy to find private lenders who will put up the money to buy investment properties using equity participation financing.

    • Brian Kline says:

      Jackie, Thanks for the comment.

    • I would like to learn more about: “…easy to find private lenders who will put up the money to buy investment properties using equity participation financing.” Where would you recommend the best place to start for someone new to real estate investing?

      • Brian Kline says:

        Hi Bill,
        I can’t make specific recommendations because of possible liability reasons. There are countless websites offering hard money loans, private loans, and equity partnerships. With a little research you should be able to find one matching your specific needs.
        Brian Kline

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