As you can tell, investing in real estate is not an easy task. It requires a great amount of discipline and understanding of details and concepts to make the right decisions at the right time. It certainly is an involved process. Let me share some useful tips to help you succeed in your real estate investment venture.
1. Assemble a trustworthy team ahead of time before purchasing your property. Things will move fast and you will need your team’s help throughout the process.
2. When deciding to purchase a real estate property, try to strike a good balance between current cash flow and future appreciation. Don’t buy something which has good cash flow but no potential for appreciation.
3. Do some research to check out the neighborhood in which you are buying the property. Buy in established areas with good schools and a growing population as well as job market. Although your goal is to be more cash flow positive, you also need to consider other aspects of this business. If you buy a less expensive property in a not-so-good neighborhood, you may have more cash flow. However, you may be dealing with not-so-good renters. Good renters usually want to live in a good neighborhood. Considering the ease of business aspects is also of equal importance. Try to strike a balance between cash flow and ease of business.
4. Take your time to understand the market and the properties you are looking at. It is often easier to buy a property than to sell it, therefore you need to put some thought into the purchase. When you are ready to sell a property, it takes anywhere from eight to ten percent of the cost, which covers six percent agent commission and other expenses. The last thing you want is to sell a property because e you bought something you don’t want.
5. Do research into data pertaining to the market where you are buying the property. Look at the statistics but don’t fall prey to “analysis paralysis”. If you spend too much time thinking and analyzing it will make the decision making process much harder. Use intuition combined with concrete data to make sound decisions for the property you want to purchase.
6. When you are ready to make your purchase, have at least 20 percent down payment in cash. Also, get an approval for the loan amount from the mortgage broker or bank. Don’t listen to people who will tell you to put zero down payment, it will not work for your business. It is only going to complicate things in the long run. Try to go for a fifteen year or thirty year fixed mortgage with 20 percent down payment on your loan to get the best interest rate possible.
7. When possible, try handing the different tasks involved yourself, rather than going through a middle person. You will make more profits that way and you will be more cash flow positive. If you are working with partners, try to figure out their motivation. Ask questions and build trust. Try to build long term partnership and sharing of profit model as much as possible.
8. Always put your customer i.e. renter ahead of yourself and you will be ahead in the long term. Much like any other business, customer satisfaction is a big deal in this business as well. Listening to renter’s needs and complaints and responding timely is in the interest of the investor.
9. Build relationship with trustworthy partners such as your real estate agent, your mortgage broker and your property manager if you have one. It is very important to have trust in these partners for the success of your business.
10. If you are renting out a single family home, it is a good idea to find a reliable and trustworthy handyman who can serve your needs with a quick turnaround. For example, if your renters complaint about a leak in the house, you would want to get it fixed as soon as possible.
11. Don’t be late in paying your HOA fees. It might cause discomfort to your renters, a situation you want to avoid. Keep reminders in your calendar to avoid such a situation. Nevertheless if such a situation occurs, don’t panic and handle it gracefully.
12. Keep records of all your transaction, rental income, expenses, anything related to real estate in a good accounting software such as QuickBooks. It will come in handy at taxation time. You want to be prepared with all the data when you file taxes.
