Yes, many people have exited the real estate market almost as quickly as they entered it- but with a lot less cash. And it’s horror stories like these that keep many people away from the business. But did you ever stop to wonder what it was that those real estate investors did wrong? Was it just a case of bad luck? Or was it a series of poor choices that led to failure? In reality, there is a right way and a very wrong way to invest in real estate. Here, I’ll walk you through the wrong way to make sure you don’t follow this path and rather, end up a very successful real estate investor.
Going for a Real Estate Market…Just Because
Don’t choose a real estate market just because- just because you live there, just because it’s a major city, just because you’ve always wanted to own a home there. Those aren’t great reasons to buy investment property in a location.
For example, it may make sense to invest close to home because home inspections and rental property management will be more convenient. But real estate investing is not about convenience. It’s very possible that your real estate market is one where the return on investment (ROI) is low. Or perhaps future forecasts point to a serious downturn and drop in property value in the very near future which isn’t the best way to start your real estate career. It may even simply be that you can just find better investment opportunities elsewhere. So why limit yourself just for convenience?
The right way to invest in real estate here is to analyze different cities and their markets. Online research is the first step. Check out different market reports from reliable resources like Mashvisor, NAR, and the PWC. Don’t forget to analyze different neighborhoods within a market as well to find the absolute best place to invest in real estate.
Related: How to Identify the Best Places to Invest in Real Estate
Buying the First Investment Property for Sale You Come Across
This might sound like a no-brainer, right? But, believe it or not, many newbies invest in real estate simply by buying the first rental property in their neighborhood that is up for sale. In fact, for some, the thought of becoming a rental property owner never crossed their mind before seeing that “For Sale” sign and they make the decision on a whim (considering they have the cash to do so).
This is a terrible mistake. Real estate investment decisions should never be made on a whim. It’s possible that rental property down the street will be one of the most profitable investments. However, you won’t know until you take the time to analyze the local housing market, the income-generating potential of the property, its value and condition, as well as a few real estate comps. Only then can you make the leap. Investment property search takes time and effort and you have to sort through a lot of different properties on the market (even in multiple markets) before you find the right one. This is the right way to invest in real estate.
Investing in Real Estate with Your Cash AND Your Emotions
You may have heard this one before but it’s important to remind yourself about this as a new real estate investor at various stages in the buying process. Sometimes, we overpay for an investment property because we fear the negotiation process. Other times, we fall in love with that bay window and don’t realize the roof is showing signs of prior leakage. It’s these emotions that cause first-time investors to also be one-time investors.
The right way to invest in real estate is to make sure that you’re being logical and analytical. What will attract tenants? What will make my rental property cash flow positive? Which investment property will require little renovation? Which renovations will give me a good ROI?
Looking For and Analyzing Investment Properties Without the Proper Tools
While you may not consider the old-fashioned way of looking for and analyzing real estate for sale to be the “wrong” way of doing things, we can all agree it’s no longer the “best” way. And when you can easily do things the best way, why go for anything else? Online real estate investment tools are available at the click of a button these days. Here at Mashvisor, we offer all types of analytics and tools to help you invest in real estate and make money. Learn more.
Related: 8 Must-Have Real Estate Investment Tools
Working Alone Throughout the Entire Process
The final mistake that many beginner real estate investors make is thinking that they can take on this world all alone. Yes, you can start your property search and do all of the analysis by yourself. However, you may need help closing a deal. For this, turn to a local agent in the city of your choice. They’ll be able to help you out and evaluate a deal to confirm you did everything right (or very wrong) in the initial stages before you put any cash forth.
Looking for and even understanding the requirements of a mortgage can be a challenge of real estate investing in itself. Consider seeking out advice from a mortgage broker. They can help you find the best mortgage rates and terms. This is key to positive cash flow.
You might like the idea of becoming a landlord and it may even be somewhat easy with your first single-family rental property. But once you find that success, you’re going to want to repeat it over and over again. Once you start buying multiple properties, it’s okay to hire a professional property manager to look over the day-to-day operations and take care of your tenants.
There are even more professionals that you can add to your network like contractors, other real estate investors who are happy to offer advice and mentorship, tax and financial advisors, and real estate attorneys. Work on building your network and do not hesitate to rely on it when needed through every step of the way. It’s the right way to invest in real estate.
Related: How to Build a Real Estate Network You Can Really Rely On
Invest in Real Estate the Right Way!
With these simple real estate tips, you can get on the right path. While it’s not so simple, it can be a successful venture if you do take the right first steps.