If you are reading this article because you are seriously considering the purchase of your first property investment, you have come to the right place. Essentially, there are two types of physical property investment that all property investors should know about: the so-called “flip” and rental real estate investing.
In this article, we are going to provide you with a series of tips for how you can improve your chances of being successful with real estate investing. The guidelines presented below are made from both styles of investing perspective.
Tip 1: Understand the Power of Leverage Before You Begin
The beautiful thing about real estate investing is that it allows property investors to maximize their gains through the use of leverage (i.e. using debt to make money). Most investors (and even homeowners) do this by only putting 20% down on a house and financing the rest on a mortgage over time.
However, some investors are actually using FHA loans and only putting 3.5% down! In the meantime, they are allowed to generate money from the property by using someone else’s money (the bank’s).
Of course, leverage can be an incredible tool for maximization…but Dave Ramsey will also tell you how leverage destroyed his life many years ago. Debt can be useful, but it is also risky. Make sure that you understand the weight of that risk before you begin property investing.
Tip 2: Learn About Basic Market Cycles, Economic Drivers, and Indicators
I get it: we aren’t all economics students here. That is fine! However, you need to begin understanding some basic economic reports like the Construction Spending report and the ISM Manufacturing report (amongst others). Property investors need to know how the general US economy is doing as well as how specific market regions are faring because these things will help them determine when and where you will be able to make good property investments.
To begin learning, check out MarketWatch’s Economic Calendar and just read the various reports as they come out each week.
Tip 3: Read the Stories of Great Property Investors
Maybe it seems like I’m hitting the horse over the head at this point with this learning stuff. Still, you can either learn before you act or learn after you act. And I am here to tell you that learning about property investing before you begin will save you a lot of heartache, money, and toil down the road.
That is why I recommend that all aspiring property investors take at least a year and read the stories of other property investors who have found success in their field.
Tip 4: Don’t Buy Solely Because a Market Is Rising, but Consider Forced Appreciation
Many property investment businesses have been killed through the years because they bought properties in areas where it seemed like home or real estate prices were rising through the roof and weren’t stopping, only to find the market crash out from under them afterward.
Quick riches are highly alluring but don’t make a purchase simply because asset prices in one area are soaring. Rather, aim to buy good properties in good areas where you can make appreciation happen on your own. You can do this by fixing the yard, adding some paint, removing bad smells, and other practices.
Tip 5: Do the Math Early, Always, and Once More
If you are investing for cash flow, make sure that you have crunched your numbers a million times and once more. It is critical with this sort of investing that you know exactly what costs are going in. Also, know what you can charge for rent, and plan for those things in advance that can’t be planned for.
Similarly, if you are investing in property just to flip, be able to give anyone who asks a really good, well-supported reason that you can believe in for why you will be able to make money off that property. If you can’t do this before you buy the property, then good luck getting out of it with some money left at all!
Leaving on a Positive Note
As I said above, the two common types of real estate investment are property flipping and purchasing properties for their rental cash flow. Neither model is necessarily easy to accomplish. Still, both methods allow for success if you are willing to learn the necessary precepts.
Of course, when flipping properties, you are hoping to purchase a property, renovate it, and sell it for a lot more than you bought it for quickly in order to make a fast profit. Meanwhile, rental real estate investing is more about generating cash flow over the long run.
Up until now, it may seem like I have provided you young, aspiring property investors with nothing but warnings. Well, that is probably true. It’s true that the warnings are incredibly important for your success. However, you should know that the benefits to property investing far outweigh the risks. After all, who would do it if they didn’t?
When you decide to engage in real estate investing, you have the potential to generate cash flow. Moreover, you can depreciate away many of your tax liabilities. Also, you are able to build equity in the properties that you own. That is a triple threat that anyone should want to get their hands on.
Putting It All Together
So, go learn as much as you can. Then, find a good mentor. Someone who will help you understand specific steps that you should take with buying, selling, and renting properties. Finally, encourage other property investors to get involved in the game. That’s how Robert Kiyosaki (Author of Rich Dad, Poor Dad) made his wealth. Who knows? Maybe you can do that one day too if you experience good success.