So, you want to be a real estate investor

Castles in the Sand

There’s only one thing trickier than real estate investing and that’s – well come to think of it there isn’t anything trickier. When it comes to navigating the ins and outs of real estate investing there is so much to learn that pulling a rabbit out of a hat seems like child’s play.

There is a saying that true real estate wealth is based on cash flow and that’s what investors, especially first-time investors, should aim for. Generating cash flow in a good, stable rental is more dependable than counting on a quick flip and appreciation.

If you’re purchasing a property that needs work first determine if the improvements are for the purpose of renting or flipping. Obviously, rental property can be improved with simpler and lower end finishes. If you are buying to resell, check out comparable properties for sale in the area and see what type of finishes are being offered.

The three most important factors when purchasing investment property is the cost to buy, the cost of improvements and how much you can sell or rent for after you renovate. Essentially, don’t over improve.

Determine the existing leases in place for rental properties and how that works for you. Go to the city departments to make sure there are not any road changes or new developments that can decrease the value of the property down the road.

Don’t be afraid to ask for help. Finding someone you trust could be the difference between a successful purchase and a disaster. Interview property managers and real estate agents who are active in the area, but don’t use their input to make a final decision.

Be realistic when calculating your financials and value your personal time in maintenance and paperwork. There are always unforeseen costs when tackling a renovation – taxes and loss of a tenant or a sudden downturn in the market can really set you back. Also, be careful when screening tenants. Do a credit check and get references, if necessary. Start small and make sure you can pay the mortgage on your investment should you find yourself in that position.

Careful with neighborhoods that are transforming, it may or may not happen. Learn the market as thoroughly as you can but it may be best to leave the more exotic purchases to experienced investors who can tolerate a downturn.

Set a targeted budget for your purchase and don’t get off track. Remember this is a business, don’t let your emotions rule your good sense. Education is the best way to keep emotions in check. Probably the most important thing and the one that first-time investors always forget is to stick to your principles and don’t overbid to prove you know what you’re doing. Know when to pass and keep searching without any emotional attachment to what you lost.

All real estate is local and that may be the best advice, especially for a new investor. Again, don’t make your decision based on the home you would like to live in and forget about the potential for profit. It’s easy to confuse where you would live personally to where you should invest.

There’s no real trick to becoming a real estate investor, no rabbits to pull out of a hat and no ladies to be cut in half. The real trick is pretty straightforward: know the market and don’t let emotions get in the way. Good Luck.

More Castles in the Sand:

Before you sell, become a home historian

Real estate sales can require scary disclosures

Florence – another wake-up call