Save money. Invest in real estate. PROFIT. For many people, that’s the sequence that comes to mind when they think of real estate investing. It is certainly true that many people have made their fortunes in real estate; in 2016, that’s how roughly 30 of America’s self-made billionaires had achieved their wealth. But the path to that success wasn’t as straight forward as it may appear. If not done correctly, real estate investments can turn into major losses. Or, almost as bad, they can absorb much of your time, effort, and cash for only minimal profit margins.
Achieving a successful future through real estate investing can be done, but it requires savvy planning. Following the tips below will give you a good starting point.
Tip #1: Plan Wisely
Any kind of investing involves making your money work for you, instead of you working for money. You’ve heard the phrase, “work smarter, not harder;” that applies to your investments as well. In your real estate investing, follow a plan. Don’t throw your money after random opportunities, or waste it chasing after a poor return. Make a plan, and let that plan inform the goals and methods of your real estate investing. The specifics of each person’s plan will vary, but here are two basics:
Real estate investing provides an opportunity to learn as you go. Begin with single-unit or small multi-family, business properties, turnkey, or fix-and-flips. Learn the ins and outs of how to find good investments, build a team, and manage your cash flow. In this part of the plan, you may limit the money you can make – but you’ll also limit the damage any missteps can cause. Keep the risks as small as you start out. By starting small, you can also get involved despite limited capital, and you’ll learn some outside-the-box ways of investing – from wholesale deals to focus on a particular niche of real estate. After you’ve learned the ropes, you can move generally to the second basic part of a real estate investment plan.
With the basics mastered, you can move to bigger and better things. Multi-unit properties, syndicating deals to high net-worth individuals, bigger deals in general; don’t limit yourself to the small stuff forever. Keep your sights, and your plan set high. Again, the specifics will vary, but as an example, if you started with small multi-family, now look for 16-unit rentals. Don’t stay at the same level forever! As your experience grows and your plan progresses, move forward!
Tip #2: Assemble a Team
Particularly when you first start out, a key to your success in real estate investing will be finding and learning to use professional help. Employ an accountant to manage your money, and to keep you up-to-date on your all-important bottom line and cash flow. Retain the services of a lawyer, to examine contracts and teach you what to look for and what to avoid, before you sign the dotted line. You may even look for a real estate investment mentor before you start doing any investing at all! The one all-important member of your team will probably be your property manager. Once you reach the later stages of your plan, you’ll almost certainly have more properties than you alone can manage. Your property manager relieves that burden.
You can also think of two teams, a team of advisors and a team of associates. The advisors, from your lawyers to people doing market research, keep you pointed in the right direction. The associates, like your property manager, make sure you’re moving towards your goal, handling the purchase and sale of the property, rent collection, etc.
According to Jake Marmulstein, CEO at Groundbreaker “The good thing about a career in real estate is that once you’ve gained some experience in the industry you can branch out and launch your own investment group. While that appeals to many people it also brings greater responsibilities on yourself, such as being responsible for generating your own business opportunities and caring for a growing capital base.”
Tip #3: Know Your Real Estate
The most obvious one, this last tip is easy to overlook. Don’t forget the real estate basics!
- Remember the importance of location. You can repair or renovate a property, but you probably can’t move it.
- Find a niche! As mentioned before, it may work to specialise in a particular kind of investment. Student housing, for instance, may prove to be an excellent choice, or properties within a particular geographic area. Whatever the case may be, it can be a helpful strategy to stay focused on one area.
- Do your research! Assemble your team, and then use them. Know your market research, so you can make investments more wisely. Build a network, and use your contacts to find new investment opportunities.
- Use your cash flow! As you build a portfolio, you should be producing a positive cash flow from your rentals. Obviously, this will be the single most important factor for savvy investing, since it will allow more investment, more rentals, greater cash flow, etc.
- Don’t stop learning. In some ways, real estate investments have changed little from Andrew Carnegie’s time. He amassed a vast fortune through rentals, property sales, etc. – all the same things that modern-day investors do. Nevertheless, as technology develops and the market changes, it remains vital to continue learning. Everything from local rules and regulations to broader economic trends can help you become a smarter real estate investor.
These are three simple tips designed to give you a successful future in real estate investing. Heed them well and add your own tips as you study and invest for yourself!