1. Develop the Correct Attitude
Foremost, if you are to succeed at real estate investing, you must understand that real estate investment is a business, and you become the CEO of that business.
It’s crucial, then, as your first order of business, to develop the correct mind-set about investment real estate and be able to make the following distinction between buying a home and investing in real estate:
“You buy a home to live and raise a family; you buy investment property to pay for the home, live comfortably, and raise your family in style”
As one investor put it, “Only women are beautiful, what are the numbers?”
In other words, to invest in real estate successfully you must acknowledge that it’s not curb appeal, amenities, floor plan, or neighborhood that should turn you on or off to the investment opportunity; that what counts most is the property’s financial performance.
2. Develop Meaningful Objectives
A meaningful set of objectives that frames your investment strategy is one of the most important elements of successful investing. Stay realistic. Yes, we all desire to make millions of dollars from our real estate investment property, but fantasy is not the same as expressing specific goals and a method on how to achieve it.
Here are some suggestions:
How much cash can you invest comfortably? What rate of return are you hoping to generate? Are you expecting instant cash flow, looking to make your money when the property is resold, or merely looking to achieve tax shelter benefits? How long do you plan to own the property? What amount of your own effort can you afford to contribute to the day-to-day operation of running the property? What future net worth are you hoping to achieve by investing, and by when? What type of income property do you feel most comfortable owning, residential or commercial, or does it matter?
3. Develop Market Research
As a novice to real estate investing, you probably know little about income property in your local market. So, do market research to learn as much as you can about income property values, rents, and occupancy rates in your area. The better prepared you are, the more likely you are to recognize a good (or bad) deal when you see it.
Here are some resources to check out:
(a) The local newspaper,
(b) A local appraiser,
(c) The county tax assessor,
(d) A qualified local real estate professional,
(e) A local property management company
4. Run the Numbers
Calculating the property’s cash flow, rate of return, and profitability is crucial to a successful real estate investment business. As the CEO you’ve got to know what you’re buying, especially if you’re trying to determine which of several investment opportunities would be the most profitable.
You have two options:
- Invest in real estate investment software. This will enable you to discover for yourself the rental property’s cash flow and rates of return, and create your own analysis reports. Plus, by running the numbers yourself, you gain a broader understanding of real estate investing nuances, and in turn might be less likely to fall victim to the wiles of someone with little concern about how you spend your money.
- Work with someone who owns real estate investment software and can run, present, and discuss those numbers with you.
5. Develop a Relationship with a Real Estate Professional that’s Qualified
Getting to know a qualified professional is a great way for beginners to get started with investment property because an astute professional can acquaint you with local market conditions, recommend a property that meets your investing objectives, and discuss strengths and weaknesses about specific property performance.
Just be certain, however, to work with a real estate person who understands real estate investment property.
Be sure the agent has a firm grip on key financial measures inherent to real estate investing, knows how to measure profitability and rate of return, has the ability to present the data you need to make wise investment decisions, and, most importantly, shows a genuine interest in how you spend your money. The last thing you want to do is to get involved with an agent that would throw you under the bus just to make a commission.
Here’s a good way to interview for an agent. Ask about cap rate, cash-on-cash return, and then request an APOD or Proforma Income Statement. If they stand there looking at you like a deer into the headlights of a car in response to even these basics, find another agent.
6. Start Investing
That’s it, it’s time for you to get started. Here’s to your real estate investing success.