For beginners just getting involved with real estate investment, there are many pitfalls and potential mistakes that they must avoid if they want to make successful investments. Luckily, new investors can learn a lot from veterans who have learned these things the hard way.
Joel Cone at US News and World Report asked some of the country’s most successful real estate investors for their most important advice, and here are some of the tips that you need to know before you invest.
Always Have an Exit Strategy
In general, there are two ways to invest in a residential property. Either you hold the property long term and receive rent from tenants, or you buy a property and then quickly flip it for a profit. Either strategy can be successful, but it’s very important to decide on your strategy right away, so that you have a plan for how long you will hold the investment and how you can exit if it goes bad. With a proper exit strategy, you will be able to prevent losses or keep them to a minimum.
Here are 8 tips to keep in mind when putting real estate deals together and formulating your exit strategy.
#1 Do Your Research
When it comes to real estate investment, there is a lot to know. You should not jump into the market without first understanding the basics as well as the general information about your specific real estate market.
There are many seminars and courses that charge tens of thousands of dollars and promise to provide you with amazing tips and tricks. For the most part, these programs aren’t worth the money. Instead, you should join a real estate association, get to know some experts, and find out what they think about your specific investment plan. You can also find some great books on real estate investment. They will be much less expensive than a pricey seminar, but you’ll still get the same information.
#2 Create a Specific Plan
You can’t make money in real estate if you don’t clearly set out your plan and your goals. You should know what type of investment you want, what type of property, and what type of location. Price out estimates for mortgages, maintenance costs, and rent. This way you can figure out if your plan is solvent before you start. If you want to eventually scale up, plan that out as well, so that you can do it in an intelligent and practical way.
#3 Don’t Overpay
This advice is most important for those who are flipping properties, but it’s also useful for other real estate investors. Once you find a good property, you may be tempted to overpay to win a bidding war. However, your buyers and tenants will most likely not overpay.
Remember that buying an investment property for a good price can be more important than about everything else you do.
#4 Network with Other Professionals
Local real estate is a community. If you want to be successful, it’s important that you get to know other investors as well as all the agents in the area. Making friends can be enormously beneficial.
#5 Don’t Get Greedy
Many real estate experts warn that becoming greedy or forgetting to be humble can be disastrous to your investments. After making a few good investments, you may feel on top of the world and like you can do no wrong, but this can cloud your judgment. Any investment can go south at any time. Even if it feels like everything you touch turns to gold, your luck will eventually run out if you don’t take the proper precautions.
#6 Always Have a Buffer
You should always keep a large amount of money in savings to act as a buffer in case anything unexpected happens to your investments. A simple rule of thumb is to keep at least enough money to rehab 10% of your properties. This money could save you in the event disaster strikes.
#7 Prepare for the Worst
Though real estate is commonly thought to be a safe investment, there are always going to be risks. You should prepare for unexpected problems and costs. Real estate veterans recommend that you always maintain high levels of insurance on your properties because this will protect your assets in a worst case scenario. Skimping on insurance may save you a little bit of money, but it could cost you thousands of dollars after a disaster.
#8 Always Look to Create Deals
When investing in real estate, there are always options and potentially different exit strategies. Don’t become complacent, especially when you’re stuck with a bad investment. Think outside the box and look to create deals, even if you have to take a small loss today to make a significant profit tomorrow.
There are many pitfalls associated with real estate investing that could potentially result in a significant financial loss. Successful investors either sweat every miniscule detail relating to their real estate investments, or use industry experts to guide them.
Graystone Investment Group is an Investment Group wholesaling properties in the Northwest coast of Florida market. We do the research to find properties that we resell to investors at discount prices, while also connecting them with private financing. We also coordinate with rehab and management companies we’ve worked with for years, at no extra charge.