What separates a successful real estate investor from those who fail, give up, or never even try? The first thing that comes to mind – Fear. Fear of failing. Fear of losing your hard-earned money, even if it's as tiny as an earnest money deposit check. Fear is a natural feeling, but all hope isn't lost yet. There are steps you can take to overcome that fear and increase your chances of success as a novice or a veteran in the field of real estate investing.
One of the most common reasons for investing in real estate is earning passive income or attaining financial freedom. Investing in real estate can be highly profitable, whether it's your full-time career or side hustle in addition to your nine-to-five job. The key is to understand the associated risks and the will to commit to the idea 100%.
Here are a few quick tips to enhance your chances in real estate investing:
- Understand Your Market
- Pick Your Real Estate Investing Niche
- Build Your Team
- Connect, Observe, and Grow
- Explore Real Estate Crowdfunding
- Estimate Your Costs Upfront
- The Buy-and-Hold Methodology
- Have an (or multiple) Exit Strategy
- Never Stop Learning
Understand Your Market
When starting out, it's imperative that you take time to learn about your market or your niche. Buying a property is a no-brainer, but it's what you do with that property that determines your success. If you wish to renovate, understand what a buyer loves to see in a property and evaluate the price tag based on the median price in your neighborhood.
Staying well informed on current market trends like median rent, interest rate, unemployment, and crime rate will help you remain cognizant and plan better for the future. Eventually, you'll be able to anticipate the market and stay a step ahead with your investing.
Pick Your Real Estate Investing Niche
Instead of doing eight things poorly, choose one thing and focus on doing it well. It takes a while for investors to gain extensive knowledge in their niche to become successful. Do your homework to understand what kind of investment is right for you? Is it a rental property, house flipping, real estate crowdfunding, real estate limited partnership, homeownership, or something else?
While it might be advantageous to invest in your neighborhood or city, don't restrict your investment potential by limiting yourself to a small geographic area. It's a good idea to diversify your investments and reduce your chances of losing money based on market volatility.
Build Your Team
Real estate investing requires expertise, planning, and focus. The best and the easiest way of succeeding in real estate investing is by consulting an investment expert who can guide you while starting out. It can be well worth your time and money. Similarly, navigating property taxes can be painfully dull and confusing for many; consider investing in a certified accountant to manage your bookkeeping.
Connect, Observe, and Grow
There are thousands of real estate investing groups available nationwide. Join a few that pique your interest and offer informative content. Another way to find your local networking group is by typing your state and Real Estate Investor's Association (REIA) in Google. Don't underestimate the power of networking. Talk to a few investors, or better yet, listen! A professional network can offer an important support system for both new and experienced investors.
Investing in real estate relies heavily on experimental learning. You learn from your mistakes, but it's wiser to learn from other people's mistakes who have already overcome the challenges you're facing. Make good use of the networking opportunity; you could find your next investment partner or perhaps a mentor to turn to for a fresh perspective.
Explore Real Estate Crowdfunding
If you're interested in real estate investing but managing a rental property and dealing with tenants is not your cup of tea, investing in a Private Real Estate Deal or Real Estate Investment Trust (REIT) through a crowdfunding platform might be a good alternative for you. This investment opportunity has the potential to generate a steady stream of passive income, but the appreciation can be relatively slow.
Just like any other investment though, please make sure to do your proper due diligence.
Estimate Your Costs Upfront
If you're a newbie, it is crucial that you understand your costs upfront. In addition to the property price and realtor fees, you need to pay for closing costs, insurance, utility bills, immediate repair work, if any, and so on. It can be tricky to budget for property repair costs. Fixing significant issues requires pulling a permit and bringing things up to code; it's not something you can work on over the weekends. If not done correctly, you could lose money on a deal. Build a rainy day fund before you consider investing in real estate.
The Buy-and-Hold Methodology
An excellent way to build wealth in real estate is by holding onto your assets. The flipping scene might not be a right fit for you, but you can certainly rent and have yourself a small business that works to knock off that mortgage. By now, most of us have heard about how crazy the housing market is at the moment. The buy-and-hold strategy could be your best friend in the middle of this nationwide investment boom. Buyers are getting into bidding wars and losing multiple offers before they score a somewhat overpriced property.
A buy-and-hold investment strategy can add value and equity to your portfolio and go far beyond a one-time payout. Depending on the market trend, this strategy can beat inflation. You might also see some tax benefits from your buy-and-hold investments and, in some cases, be eligible for a reverse mortgage. A few things to keep in mind while buying a property – validating property documents, valuation and changes to ownership, lien, legal liability, and so on.
Have an (or multiple) Exit Strategy
Always have a backup plan in case the market tanks. For example, if you're a flipper, but the market isn't so hot, then plan to rent it out for a solid cash flow every month to keep building wealth. And when the right opportunity arrives, flip it to make a killer return on investment. If you're starting out and don't have enough capital, mitigate your risk by scoring properties with enough potential to work as a rental property without requiring upfront upgrade costs. Real estate market trends keep shifting, have an exit strategy in place in case things go sideways.
Unlike stock market investment warnings, real estate investors are advertised on how easy it is to make money in real estate. But prudent real estate investors understand the potential risks and legal implications involved and tweak their business plan to minimize those risks.
Never Stop Learning
Henry Ford once said – “Anyone who stops learning is old, whether at twenty or eighty.” No matter what the television advertisements might say, you don't need to spend hundreds or thousands of dollars on coaching and seminars. There's a ton of free or inexpensive educational material out there. Look for sources that you enjoy, like videos, podcasts, books, and learn something new each day. Educate yourself on new property laws, regulations, and trends that could impact your business.
Investing in real estate is a journey. Educate yourself with the best investment knowledge available to you and connect with your fellow investors. This step won't eliminate your apprehension, but it will certainly help you feel more confident and prepared. After all, how will you know if you'll ever be successful if you don't even take that first step? At the end of the day, all of this investment advice is just advice until you act on it. Take that leap of faith and start somewhere, anywhere. Good Luck!!