The Do’s And Don’t’s Of Real Estate Investing

In our last post, we gave you a great overview of one of the best ways to generate passive income – real estate investing.

Now, we want to dive even deeper. If you’ve ever considered investing in real estate, this month’s series is for you. And if you’ve never considered it, keep reading because you might just be on the verge of your next big business adventure.

Real estate investing is a big, big world but we’re going to break things down for you and hopefully make it a little bit easier to decide if this is something you really want to do.

Today we’re going to start by sharing the do’s and don’t’s of real estate investment.

Don’t try to plan as you go. Lack of planning is the biggest mistake you can make as a new investor. A lot of people buy a house because it seemed like a great idea or a great deal, then they try to figure out what to do with the property. Trust us, no matter how great the deal was, it won’t do any good without a plan.

Do make a plan first. What type of space are you looking for? What are you going to do with the space? If your plan is to resell or rent, who is your ideal tenant? Find your strategy first, then look for the property that fits that plan. Instead of getting stuck on one property, you’ll find that there are other (maybe even better) options out there and my bidding on more than one property, you save yourself from ending up with nothing.

Don’t assume you’ll get rich quick. There are a lot of self-appointed “experts” out there who make it sound so easy to get rich in real estate. The reality is that it’s not easy. If you want an easy long-term investment, there are options out there for you, but real estate isn’t one of them.

Do commit long-term. If you want to be successful in real estate, you have to be smart and willing to work for it. This isn’t an investment that you can just buy into once and then ignore it for 15 years and expect to turn a profit. You have to be fully committed, every day, for any number of things that could happen.

Don’t try to do it alone. Seriously. There’s too much to be done and not enough hours in the day for you to do it all, even you do have the skills for all of it. Plumbing, electrical, roofing, painting, contracting, flooring, lawn maintenance, cleaning… The list is literally endless. Trust us, no matter how much money you’d save, it’s not worth it.

Do cultivate great professional relationships. At the very least, you need to have an ongoing relationship with at least one real estate agent, an appraiser, a home inspector, a closing attorney and a lender. This will help you with future deals as well as assist with financing for prospective buyers.

Don’t pay more than you should. One of the biggest reasons investors don’t make any money is that they’re paying too much for the properties. Often investors have to move very quickly on deals. But that doesn’t mean you take the first thing you’re offered!

Do take the time to research. Do your due diligence. Look closely at the deal, the value of the house, the current market conditions… This will save you a ton of headache (and potentially save you from losing a ton of money). Rather than assuming a property is going to appreciate, do some research and find the information to substantiate that belief.

Don’t skip the homework. You wouldn’t think you’re qualified to perform brain surgery without years and year of education and training, right? But many people don’t think twice about taking the plunge into real estate investing without ever cracking a book.

Do educate yourself. Before you put your financial security on the line, make sure you know what you’re doing. Read articles, check out books from the library, or see if there’s a local chapter of the National Real Estate Investors Association that could provide support and guidance. If you can’t find a local chapter, see if you can find someone in your area who owns a lot of rental properties. Call him up and ask if you can pay him for an hour or two of his time and pick his brain.

Don’t misjudge your financial status. If your plan is to buy a property, fix it up, and then rent it out, you need sufficient cashflow to cover ongoing maintenance for the property. A lot of investors just assume they’ll be able to hire a property manager without ever having interviewed one or having any idea how they work or are paid.

Do be prepared for the expenses. Make sure you know exactly what will be require financially. For a rental property, you’ll need to account for ongoing maintenance. If you decide to hire a property manager, keep in mind that a lot are unwilling to take on one single-family home or a duplex because they prefer larger complexes. And they don’t come cheap. Fees of 7-10% of the monthly rent are common so be sure you know what you’re getting into if you decide to go that route.

Don’t limit your options. Many investors start with a big dream. They buy a property and then find themselves in the hole because their only exit strategy failed. If your plan is to buy, fix up, and sell the home, what happens if it doesn’t sell or if the market crashes and your potential profit goes out the window? If your plan is to rent it out, what happens if it the rental market stalls?

Do have a Plan B. And a Plan C. If you can’t sell the house, maybe you can offer a lease-purchase option. Or maybe you can hold onto the house and rent it out until the market improves. As a final option, there is wholesale, selling to another investor at a below-market price. At the very least, you’ll be able to cut your losses that way.

As you can see, there’s a lot that could potentially go wrong when investing in real estate. But if you can manage to do it right, and do it well, it could turn into a huge income generator for you, whether you decide to do it alongside your other business, or as a full time venture.

Now, if you’re interested in investing in real estate but you don’t really want to take on the responsibility of being a landlord, real estate investment groups may be your way in the door. Come back next week and we’ll give you the lowdown.

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