When someone attempts to bundle Real Estate investing into one neat package that provides you with the “10 Rules of Successful Real Estate Investing”, use those rules as potentially good advice but please don't treat them as "Gospel". There are simply way too many variables in Real Estate investing to package a comprehensive "one size fits all" to cover all the bases. The largest shortcoming of the "10 Rules" system is that it never takes into consideration your goals, level of experience, and personal situations. Everyone has a different story. The "10 Rules" system is simply NOT going to apply across the board.
Just for argument's sake, let's imagine fitting the same "10 Rules" system into a one size fits all scenario. Imagine 10 rules to cover every one of the following situations.
There are many variables to go into understanding how to properly evaluate an potential investment. Looking at what is known or obvious is the easy part. So how do you factor in the "UN-knowns"? These "X" factors are what make or break an investment.
Cap Rates / Cash on Cash / Internal Rate of Return / Comparable Sales / Income Approach / Cost Approach / Sales Approach and the list goes on.
How long are you going to hold an investment?
What is your exit strategy?
Are you getting the picture?
There are many opinions and philosophies on this subject. And the answer depends on many differnt factors. This is a decision to be made after consulting with several different people. There are factors that may need to be discussed with your CPA, Financial Advisor, and, most importantly, with someone that has a great handle of the potential risks in both good and bad Real Estate markets. (HINT: An investment-oriented Realtor with multiple decades of experience will work.) Be sure the Realtor has a solid understanding of the market trends and fluctuations. Someone who has a good handle on what "may be likely" to occur in the next couple of years.
So are you beginning to see what I mean by “Listen to all of them AND none of them”? There are so many questions to be asked - let us answer them for you.
Let’s start with a few assumptions as to why you are reading all this. Let's see which one fits your situation at this time.
There may be other reasons, but these are the most notable. So...the best thing I can do for you is to provide the absolute, unquestionable, most solid and truthful advice that I can give anyone, at any level, who wants to invest in Real Estate. And after I provide you with these very solid and core foundations of successful Real Estate investing, it will be up to you as to how you want to move forward. Whichever direction you choose, we are available to assist you through the adventure.
Seek out someone with experience in Real Estate investing. Someone who will draw out of you questions and answers you haven't even thought of. From these discussions, you will be much better prepared to make the bigger decisions. Ones that are going to make (or cost) you a lot of money. Listen to experienced investors and an experienced investment oriented Realtor.
So many people make the mistake of purchasing investment real estate based on the "emotions" of what they like or would want to live in themselves. Or worse, out of the sheer excitement of getting a first deal under your belt. NO!!! There is no room for emotions. This is a factual, dollars and cents game. Remember, you are in this for the money. If it makes sense financially, that's all that matters. End of story.
This SHOULD be an easy one but I am constantly amazed at how many people buy on what they "speculate" is going to happen at some time in the future. Unless you have money to loose big on the chance of winning big . . . Don’t do it!!! Buy in todays dollars, not tomorrow's speculations. Enough said.
Your chances of loosing in an overheated market are
much greater than your opportunity to win. When a market is hot, it is going to crash. It’s just a matter of when you recognize the opportunity and when you get in. But be careful, it goes back to that "do not speculate" thing. Look at history - in the Real Estate and the stock markets, very few make it out alive when they buy in too high. (Trust me, I've been there.)
Never ever be in a big rush to spend your money. Be patient. I have seen new investors with that 3-day real estate seminar excitement & basic knowledge, go out and make the absolute worst deals out of sheer excitement (& ego). You MUST show patience but have the confidence to move with lightning speed when you KNOW the deal is lucrative.
Nothing drives me crazier than a wanna-be investor who wants to write a contract "after" he/she is sure that it's a good buy. NO, NO and NO!!! "Control" (get under contract) a property that has potential and then make your decision. If it's a good deal and the property is not under to YOUR control, someone else is going to come in under you and steal that opportunity. A properly written agreement ALWAYS has a due diligence period and a way out. The name of the game is "CONTROL THE PROPERTY" then make your decision!
Be a direct investor in real estate. Own the hard asset that is Real Estate. Be cautious of owning real estate through funds, partnerships, or other paper-based investments where you own shares or other securities of an entity you don’t control. This is not Real Estate investing. It is investing in a fund which is controlled by one of those “experts”. There are some noteworthy and profitable funds out there for sure, but you are most likely not going to see the same long terms returns when compared to a sound real estate purchase (one that is YOURS and one that YOU control).
As your portfolio grows, begin diversifying your holdings. Like the stock market, whenever there is a downturn in one segment of a market, there will typically be an uptick in another. Some single family homes mixed with some small commercial properties may be a great idea. This proven strategy creates a balanced mix in your portfolio and softens the blow when hard times hit one segment of the market. Look for the great times to purchase in a down segment of the real estate market.
This is the tough one. You will hear everyone’s differing opinions on this subject. And again, they are all correct and all incorrect. It all hinges on your tolerance, cash flow, goals, and market conditions. This is another area where a seasoned investor or an experienced Realtor (a combination of both is even better) can be of tremendous help in making that decision. You may also want to discuss this with your financial advisor or CPA. More often than not, it's not whether you use OPM . . . it a matter of how much OPM do you use.
Unless you are into Real Estate investing as a full time “JOB”, hire a really good property management company to manage your investments. Build the management fee into your evaluation. This is money very well spent. Stay focused on your day job. This is how you pay the monthly bills and enjoy your personal life. You know what you know in your job. Let the Property Management Company hassle with the BS side of investment Real Estate. This is his/her job. A Management fee is money very well spent.
When it comes to hiring a Realtor for your property search, it is imperitive that you hire an investment oriented Realtor who understands how to locate and evaluate potential investment property. Like placing your dollars with an investment advisor or stock broker, you need to be absolutely sure that this individual fully understands just what to look for, how to evaluate, how to negotiate, and how to close on the most lucrative and safe investments possible. A really good investment oriented Realtor is money in your bank. Hire wisely.
Do NOT pretend to know enough about Real Estate investing to think you know it all. Drop the ego. DO NOT let your pride and ego get in the way of spilling your guts to someone who can help you gain more knowledge. Don't be afraid to admit to what you don’t know or your lack of experience. Pride and ego are always a loosing combination when investing in real estate. Ask questions! Be a sponge - no matter how much or how little you think you know. There is always more to learn.
Now that you have more questions than answers, we invite you to pick our brains. We will be happy to coach you as to what direction may be best in achieving your Real Estate goals and investment success. Please know that a 1-2 hr session is free and there is NO obligation to use our services. We are here to help you