Real Estate Investing 101: How to Set Yourself Up for Success
Renters Warehouse Blog
Getting started with your first real estate investment can be an exciting time.
After all, there’s a lot to look forward to with real estate, and it’s one investment option that’s long been used as a vehicle for both long-term wealth creation and immediate cash flow.
But despite the tremendous benefits of real estate investing, taking that first step to rental property ownership can be nerve-wracking. There are plenty of
While taking that first step is always the hardest part, the good news is that there’s a lot that you can do before and even after investing to directly impact the performance of your investments.
If you are looking to set yourself up for success with real estate investing, here are a few things that you’ll want to consider, and steps you can take to get yourself off to the best start possible.
Do Your Research
First things first, set yourself up for success by soaking up as much knowledge as possible. This means getting ahold of some good books –like, The ABCs of Real Estate Investing and The Unofficial Guide to Real Estate Investing and regularly browsing good real estate investment blogs, like Bigger Pockets. It also means taking the time to familiarize yourself with different markets and finding one that’s up-and-coming, with good job prospects, development, and signs of growth. See trends to look for when searching for a good area to invest in.
Treat It Like a Business
Before you begin, it’s also important to ensure that you have the right mindset. While some landlords treat property management
Have Enough for the Down Payment
While some investors advocate making the minimum required down payment, you’ll want to carefully consider putting more down. The ability to make a larger down payment offers a number of benefits to any investor, including the fact that more equity from the start will help to provide a cushion in case of short-term fluctuations in the housing market. A down payment of 20% or higher will also eliminate the need for private mortgage insurance (PMI) –a type of insurance that the bank requires, which could represent a savings of thousands of dollars extra per year. Learn more about the benefits of a large down payment.
Be Clear on Your Investment Strategy
There are many different strategies and options when it comes to investing, and you’ll want to find one that will work best for you. Determine from the start which type of strategy you’re going to take; for example, will it be fix-and-flip or long-term rental properties. Then, decide what type of properties you will invest
Run the Numbers
Once you have a prospective property in your sights, you’ll want to run the numbers to see whether it checks out as a good investment. Keep in mind that just because a property might be priced low, this doesn’t necessarily indicate that it has good investment potential. Likewise, don’t be fooled into thinking that a property has to have the very best, top-of-the-line features in order to perform well as a rental. Instead, the best rental properties that tend to produce the highest rate of return are usually found nearer to the middle of the spectrum. Before taking the leap, you’ll want to tally up your expenses: mortgage payment, insurance, taxes, utilities, and professional fees and property management costs, as well as vacancy times –and weigh them up against your projected rental income to see what your cash flow will look like, and to get an idea about the type of returns that you’ll get.
Assemble Your Team
While you may be able to handle many aspects of rental management on your own, at least in the beginning, if you’re planning to grow your portfolio, this isn’t a sustainable approach.
When it comes to investing, enlisting the help of seasoned professionals can help to alleviate many common issues –and makes it far easier to add new properties to your portfolio.
You can begin building your team before you invest; start by seeking out recommendations, checking references, and building relationships.
Here’s a look at a few experts you’ll want to have on your team.
- Real Estate Agent
A good real estate agent can help to make the process of buying an investment property a lot easier. And a good, investor-friendly agent is worth their weight in gold. They’ll be able to offer advice, inform you on the state of the local rental market, set you up with an MLS search so that you’ll be the first to know when properties that fit your criteria hit the market, and guide you through the entire purchasing process.
- Finance Partner
Unless you have a large portion of money ready to purchase a property outright, then you will need to find a financial partner who is willing to loan you money. In most cases, this will be the bank. When it comes to securing the best loan possible, you’ll want to make sure your credit score is good, and shop around to find out who offers you the best loan terms. Don’t feel like you have to go with the first bank that you find. Often local community banks tend to offer more flexibility in loan terms and will prove to be the best fit for a new investor.
- Property Manager
Hiring a property manager to oversee the day-to-day responsibilities with your rental is another great
- Professional Services
Unless you’re planning on performing maintenance and repairs to your property yourself –or going through a property manager, you’ll also need a plan for outsourcing these tasks. Be sure to line up a plumber, electrician, and general contractor that you can contact when the need arises. You’ll also want to have a plan for taxes. In most cases, enlisting the services of a good CPA can help to make life easier, and can even make you aware of valuable deductions that you may be eligible for as well; helping to reduce your tax bill.
Having a support team lined up from the start can make it far easier to invest in rentals, allowing you to scale your portfolio seamlessly and confidently, knowing that the right people are in place.
Getting started in real estate investing can be an exciting time, and preparing for what’s ahead can help you to invest confidently.
If you’re uncertain about taking that first step towards investing, you’ll want to make sure you’ve done your research and are ready for everything that real estate investing entails. And if you still have questions, don’t hesitate to reach out to other investors who have been there, done that as well. The Bigger Pockets forum is one such place that’s great for connecting with experienced investors and real estate professionals alike.
On the other hand, though, don’t wait so long that you never take the plunge. Regardless of where you are at in the process, there will always be something new to learn or understand. Don’t become so overwhelmed with the idea of knowing all that there is to know, that you never take that crucial first step. After all, there’s a lot that you will learn along the way –and once you get the ball rolling you can always change and adapt your strategy as you go along.
So get yourself off to a great start by doing your research, laying the groundwork, and lining up your team. Then it’s time to make your move.
Are you thinking of taking the first step in real estate investing? Be sure to get ahold of your FREE Guidebook: So, You Think You Want to Buy an Investment Property? See what you need to know to get your real estate investments off to a great start.
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