Real estate investing can generate real wealth, but it takes tenacity, dedication, and smarts. Here are ten tips from firms like Nelson Partners to get you started:
1. Don’t try to be a real estate expert
Understand that you won’t know all the rules when you’re starting out. That’s okay. Don’t get discouraged if you can’t find, finance, or manage a rental property with ease — your first few deals will likely be frustrating and take longer than expected.
2. Start small and build from there
If possible, buy one house to live in while you’re learning the ropes. Then, once you understand how to buy property, get a feel for managing tenants and can predict repair costs, expand your holdings.
3. Be patient
Real estate investment is long-term in nature. Don’t expect to make money right away or become an overnight success — though it certainly is possible to get wealthy quick through real estate. Patience and dedication are required to succeed in this field.
4. Be willing to fail — a lot
You’ll encounter a lot of bad deals during your real estate career, so expect them. If you don’t lose money on a property or sale, consider yourself lucky. Successful real estate investors learn from their mistakes quickly and move on.
5. Learn your market and location’s limits
If you’re considering buying a property, know the median home value, typical rental rates, and typical purchase prices for homes in your area. You can find this information easily online or by talking to local real estate agents and landlords. Uneducated investors buy properties that are too expensive for their market, leading to bigger losses.
6. Never buy without an exit strategy
Investors fall in love with properties and lose sight of their goal: making money. Don’t let yourself get attached if you think you might not make a profit — it’s okay to walk away from a deal that doesn’t look quite right. There will be other, better opportunities.
7. Evaluate each potential deal on its own merits
Different properties have different value propositions and aren’t all profitable or equally worthwhile investments. Just as stocks in one industry sector don’t perform the same as those in another sector, so too do properties with vastly different characteristics produce widely varying returns. Property evaluation is critical.
8. Know the true cost of ownership
When buying, don’t forget to factor in other costs beyond the purchase price — such as property taxes and other recurring fees. Add up all these expenses and compare them to your potential rental income to see if the deal makes sense. If you’re selling, be sure that your asking price accounts for all the expenses of ownership as well as a reasonable return for your time and effort.
9. Calculate risk before you buy
Potential losses from depreciation, interest rate changes, and cost overruns eat away at profits over time in real estate. Take a look at these risk factors to determine if a potential investment has a positive or negative overall risk/reward ratio.
10. Don’t get in over your head
Investing is best when it’s done within your skill and comfort level — so don’t take on too much risk or borrow more than you can afford to repay. Start slowly and work your way up, learning as you go along.