Today, lots of investors want to add real estate to their investment portfolio, but quite often, they don’t understand the complex nuances of real estate investing or how to start the process. Investment properties are substantially different from investments in stocks, bonds, CDs, and can be overwhelming to new investors.
A few years ago, investors had called me to buy rental properties after losing a lot of money in the stock market. She’s excited to start a real estate investment career, but she’s afraid to invest in something new. In fact, at the first closing, his hands were shaking so he could barely sign his name on the document. She now has eight houses and has become very successful. We laugh every time I remember what was nervous at first.
But real estate investing does not have to be hard or frightening. When I teach people how to invest in real estate, my philosophy is to maximize results and minimize risk. If done correctly, real estate investing is one of the safest and best long-term tools for investment. With that in mind, here are 9 tips to help you successfully start your real estate investment career.
1. Real estate investing is a business and you have to treat it that way. Start developing a good business plan, detailing the nuances of starting and running your own business, with realistic goals in one time, three, five and ten years. If you do not know how to write a business plan, you can find help on the Small Business Administration website.
2. Check your credit report to define your capability to finance investment property. Most lenders now require 700 or better FICO (Fair Issac Co.) scores from borrowers who want to buy investment property. Also, make sure that your debt to your total monthly income ratio is low. It often makes sense to pay debt borrowed in the form of a debt or car loan to increase your debt ratio. You are entitled to a free credit report per year from three major credit agencies (Trans Union, Equifax and Experian), but only give your story and not your score. Instead, try Karma Credit to get both.
3. Determine the best areas for finding properties. Some new investors make the mistake of limiting their search to areas close to their homes. But often, the ‘what it seems’ best rental areas can be a bit ‘further’. New investors may think they need to live near their property when tenants call repairs or other problems. But in reality, if the house is put into good condition before your tenant moves, the calls of the tenant should be few and far.
4. Talk to other investors about local real estate. Join the real estate clubs in your area (do a quick Google search to find them). The real estate clubs are a great place to network with other investors, lenders and repair service providers. You can often take useful tips in your local market with other members of the club. Some communities offer real estate investment programs through adult education or local real estate brokers. If you cannot find a real estate club or course, consider an online investment forum.
5. Consider different sources for buying property. New investors might think they can buy a home only through their MLS service (some service list) locally or beat the door in a rough neighborhood looking for depressed sellers. But sometimes you can find better deals on real estate auction sites and these sites allow buyers in a position to easily make purchases outside of their area.
6. Take time to read about real estate investing. A large amount of free information is currently available online about real estate investing. When purchasing a book, look for one that offers a handy guide for buying, flipping, renting, and selling properties. Avoid books that claim that you can make huge amounts of money in 30 to 60 days or 25-year-old books detailing techniques that may no longer work.
7. Find a good realtor to help you find the property. Not all experienced or even proficient Realtors help investors. Prior to the 2007 real estate crash and subsequent foreclosure seizures, only a fraction of the realtors would cooperate with investors. Since then, many realtors have taken courses and suddenly claim to be “experts” in foreclosure. Make sure you choose a realtor who has sold a great number of investment properties, and also who understands concepts such as return on investment (ROI), net operating income (NOI), and debt services.
8. Look for a return of more than 1 percent per month of the sale price. The old saying of real estate says that rental properties that generate 1 percent of the selling price per month are pretty good. In other words, if the house costs $ 100,000, you should earn $ 1,000 a month for the lease, or about 12 percent of the annual yield. But in many areas of the United States today, the value of homes has declined substantially and investors are now able to achieve profits of more than 1 percent per month.Let me share two examples of houses that I bought with cash in 2013. The first sale price was $ 62,000. It leases $ 1,050 per month, an annual yield of more than 20.3 percent. I bought a second for $ 39,900, and the price reached $ 795 per month, an annual yield of 23.9 percent! Even in terms of repair and other il costs, each is still 15 percent and 18 percent in both houses.
9. Learn from the best. To achieve success, track your investment decisions after what other successful real estate investors in your area do. Search Google for real estate clubs in your city, or try other sites.
Most importantly, remember that like everything else, the harder you work and the more effort you put into your real estate investment business, the more and faster your final reward will come. Good luck!
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Hello, my name is Jade Cudmore, I’m reaching 40 and, among many other things, I’m a video-blogger, more mentor than coach, “accidental” lecturer and mother of two girls. And I could say that my life has been a constant search around this question: