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.
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.
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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.