Real estate investing is a term used to describe a range of different types of investing in real estate. Property investors have a lot of personal freedom as to how they want to go about it, from being a landlord and hiring a management company or being an actual property manager themselves, to investing large amounts into multiple properties over longer periods of time for huge returns. Regardless, there are six things that all investors must know in order to be successful.
1. Money Management
Property investing is all about making money, of course… But the trick isn’t so much in knowing how to make money. If you can manage your personal finances responsibly, then you’ll find that compared to other avenues like trading stocks or trying to speculate on the value of goods (like gold, oil futures, etc.), real estate is among some of the least risky practices that you can do. The secret to successful property investing lies in money management, and how you reinvest the proceeds you gain from your investments. Unlike other forms of investment, real estate is a much more slow-paced and steady one. But this doesn’t mean there aren’t costs associated with it: ongoing maintenance and repairs, as well as utilities and taxes, all cost money and must be taken into account in order to maintain a positive cash flow. Knowing what new property to invest in, and when to save money for maintenance or other expenses of your existing real estate is crucial.
2. Know Your Locations
The first thing that all investors must know is the importance of location. It certainly wouldn’t make sense to buy a fixer-upper (a run-down property in need of extensive repairs, ed.) if neither you nor any contractors you can hire have a clue as to how much the repairs would cost. Similarly, it’s equally important to know what types of properties tend to do well in which areas – especially if you’re going into that area with the intention of flipping or renting out your new property. Investing in real estate with the intention to upscale it won’t do you much good if the location can’t attract the tenants that can afford rent at that price. Location plays a role in determining the type of potential tenant you can expect to surround your property, but also plays an important factor when it comes to how much work needs to be done on each property. A location that’s prime for office space will not necessarily be prime for industrial space, after all.
3. Protect Yourself
Thirdly, another thing that must be understood before investing is the importance of protecting yourself as an individual who will be buying and selling or renting out property. Protecting your assets is important because no matter how safe you think your investments are if there’s a chance for things to go wrong or for your property to be taken away from you, it’s best to take any necessary precautions. Protection comes in many forms, the first which is usually legal protection afforded by things like title insurance and having a lawyer look over your contracts should anything go wrong. Whether you plan to sell the property, rent it out, or use it as an investment property, it’s vital to have contracts drawn up. If you’re renting, it’s important to have a lawyer go over your lease with a fine-toothed comb to ensure you’re not accidentally giving up any of your rights as an owner. Contracts will protect you in most cases that involve businesses or tenancies, whereas legal protection will protect you in cases that involve disagreements between homeowners and other parties who may have a stake in the property.
4. Research & Develop A Strategy
Perhaps the most important lesson property investors must learn is to make sure they do their research on all of the things discussed previously. But one step further than simply knowing about it: you actually have to figure out a strategy for yourself as to how you’ll approach investing in real estate, because there isn’t one single strategy that’s going to work in all cases. Even if you have a mentor or someone who gives advice on investing, it’s important to take charge and figure out your own strategy in order to ensure success. A solid plan for investments will tell you not only what type of property to invest in, but when and where to invest, how much to invest in your chosen property, and what you hope to get out of it. Be sure to save up enough money for the unexpected – anything from leaks in pipes or cracks in walls might require immediate repairs that were not included in your original plan but can end up costing you thousands of dollars if you’re not prepared. Having a plan of how long and how much you have to spend on a property before it starts turning a profit is a good place to start when developing an investment strategy.
5. Property Management
Property management isn’t necessarily important for those investing just on their own, but it becomes more important if you’re planning on investing in real estate with other people. It’s important to make sure that the person(s) you choose to purchase property with are trustworthy and dedicated, as being a part of an investment team means being a joint owner of the property. Someone who is dishonest or doesn’t have enough money could cause problems down the line if they constantly need to be given money from the profits or because you’re funding their share of the investment. Being partners with someone is a big job and it requires trust, which can be difficult to get from strangers unless you’ve known them a long time. However, checking references and reviewing past relationships between your prospective partner(s) and other parties is the best way of figuring out whether or not they’re someone you can trust.
6. Stay Organized
Finally, being organized is a huge factor in being a successful property investor. Keeping your finances and accounts in order helps to keep things transparent and easy to understand, but there’s a lot more involved than just keeping good records. Being able to trust yourself with the information you have written down is actually quite important, as it can be difficult to keep from overspending on a property if you’re already invested in several others. Check back often and make sure that everything is going according to your plan, which will help to keep your emotions in check and prevent the best-laid plans from going awry.
As a property investor, it’s important to keep in mind that one can only be successful by knowing what they’re doing. As long as you know what kind of property to invest in, when and where to invest, how much you’ll be spending on the investment, and what type of profit you hope to get out of it – all while maintaining good records so that future mistakes can be avoided – will help ensure your success as a property investor.