Real estate can be a great investment opportunity. And for those in it for the long haul, rental property really can’t be beat. But when it comes to taking that crucial first step, most people need help figuring out where to start.
If you’re in this boat – wanting to get started in real estate but worried about taking the plunge – don’t worry. That’s a good sign. Caution is always a good idea with any investment, and real estate is no exception. The better prepared you are, the better your chances of reaching the top.
If you’re considering investing in real estate, here are 10 considerations to get you off to a great start.
1. Get your finances in order
Before you do, assess your financial situation. Is there anything you can do to put yourself in a stronger position to invest? Things like paying off or consolidating debt, along with working to improve your credit score, can help you get a better loan. You’ll also want to save for a down payment. A larger down payment is ideal for reducing monthly payments, insurance and even risk.
2. Do your research
You’ll also want to learn as much as you can about real estate investing and rental property management. Brush up on the basics of rental property and pick up some good books that offer solid investment advice. Becoming a landlord requires a lot more than meets the eye, and being prepared will help you avoid many common pitfalls along the way.
3. Start Small
While you may feel pressured to go “big” when it comes to your first investment, there’s nothing wrong with starting small. It’s really about how many successful investors start out. Starting small offers a number of advantages; specifically, it gives you a chance to understand how investing works before much more is at stake.
4. Know the numbers
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It is important to know exactly what kind of return you are looking for before you start buying real estate. Start by determining your investment criteria and decide to invest only in properties that meet your standards. So make sure you have an idea of the cap rate and cash-on-cash return along with net income and cash flow.
5. Search for a location
As a new or first time investor, you may be looking for a property that is close to your home. But be careful not to limit yourself. By opening up to the possibility of investing in real estate outside of your area, you will be able to take advantage of new markets that may have better opportunities. With the property management options and resources available today, investing in out-of-town real estate is easier than ever.
6. Adopt the mindset of a business owner
Investing is a proper business and you should handle it exactly as such. Just as you would have a solid business plan in place for a company, along with clear and actionable plans, key milestones and systems, you’ll want to do the same for your investments. Remember: Your goal is to generate profit, so make sure you lay the groundwork for that. Don’t just invest in the first property that catches your eye. Just like in business, make sure every opportunity is vetted.
7. Get a mentor
Securing a mentor is one of the best things you can do if you are new to the world of investing. What better way to learn than to ask for advice from someone who has been there and done that? If you’re not sure where to start, consider working with someone who can offer you solid advice in their field – such as a good investor-friendly real estate agent. Equal Marketing’s expert team has been providing expert advice since more than 25 years to our valued clients.
8. Start building relationships
When looking to invest in real estate, it’s important to build a social network. This includes finding a mentor and developing relationships with other investors and real estate agents.You never know when they can help you find a winning deal. It is difficult, if not impossible, to succeed alone. Fortunately, there are plenty of people willing to lend a hand. Try to connect with them.
9. Create Rock-Solid Processes
In case you are renting out your property, implementing systems is vital, especially when it comes to acquiring and managing tenants. If you are unable to take the time to build the systems yourself, you will want to outsource the asset management work to a reputable firm or manager.
10. Remember: Cash Flow Is King
Finally, while there are many benefits to investing in real estate – including equity growth, tax breaks, leverage and appreciation of your property, ideally an increase in value – the primary benefit of investing in real estate is cash flow in the form of monthly income.
A property that yields a solid 10% or more is “cash flow” and a good business. But if not, you’ll want to reconsider.
While buying an investment property can be a nerve-wracking time, it doesn’t have to be. Being informed can help ensure you are off to the best possible start. So brush up on your real estate investment best practices and then get out there and take that crucial first step to start growing your own rental empire.