5 Pieces Of Advice Every New Investor Should Follow
By Paul Esajian on December 10, 2016
The real estate business is full of limitless potential. There are very few businesses you can enter without a license or formal education and quickly become successful. While there is great upside the real estate business is far from easy. If you don’t know what you are doing and how you plan on doing it the business can turn into a nightmare. The best way to avoid this is by taking a few extra steps prior to getting started. Having a clear plan for your business in mind will help you accelerate the learning curve and hit the ground running. If you have been on the fence thinking about whether or not the business is for you here are five pieces of advice you need to listen to.
- Focus On Education First. Investing in real estate is not as easy as it is portrayed at times on TV. You can’t simply knock on the door of a home you like and expect the homeowner to accept your offer. If the real estate business was that easy everyone would do it. Prior to making an offer or even looking at a specific property you should arm yourself with some education. You don’t need to be an expert in all areas of the business but you should have a solid base of education. Start by understanding your goals and what it takes to achieve them. From there move onto financing, deal acquisition and basic deal structure. You should know the different types of properties and some of costs associated with the purchase. Even if it takes a few extra weeks to get started you need to understand what you are getting into. As the old disclaimer says investors can and do lose money. Give yourself every opportunity for success by focusing on education first.
- Understand Your Business Costs. What many new investors fail to recognize is that investing in real estate is very much like running a business. With any business there are specific costs & expenses that need to be accounted for. Before you get too far you should find out what these costs are and how much capital you have available. Some of these costs can be eliminated in the beginning but some are needed for success. If you don’t have at least some funds allocated to marketing and lead generation you may not have any deals to work on. On the flip side money for a dedicated office space is not needed until your business is established. You can play around with which areas you really need to spend money on after you make your expense list but you should be ready to provide some capital when you are just starting out.
- Know Your Markets. Investing in real estate is very market specific. What is going on in one area may not have anything to do with what is happening the next town over. As you begin your investing search you need to focus on a few specific markets and make them your own. You need to understand the market demographics and what has the greatest influence on pricing. It is important to research crime rates, schools, property taxes and new housing permits. By narrowing your focus to just a few markets you will accelerate your learning curve. It can be argued that the market is more important to an investor than the actual property. A property in a good market will hold its value longer than one in a declining market. It will give you a greater number of options and increase your chances of making a profit. If you had to pick between property and market the market should always win out.
- Property Specifics. Buying a home as an investment is completely different than buying as a primary residence. With a primary residence you want to feel comfortable in the home for years to come. You have the ability make any improvements or upgrades as you are living in the property over time. With an investment property the goal is to turn the property over as quickly as possible for a profit. This requires you to think like a buyer or renter at all times. Any improvements you make should be done with the buyer and the market in mind. You need to understand which specific parts of the property produce the greatest value. Take some timeout on the weekend and go to area open houses to get a feel of homes in your area. Look at as many property listings you can find in the newspaper and ask your real estate agent to see homes you may be interested in. Knowing specific items that buyer’s desire will directly impact your bottom line.
- Invest Within Your Means. You are not going to make a million dollars on your first investment. This doesn’t mean you can’t make a good profit but you should be realistic in your goals. Instead of swinging for the fences on every deal you should always looks for properties that are within your budget. The minute you overextended yourself you are behind the eight ball on everything you do and forced to play catch up. This causes you to make decisions you may not have otherwise. Conversely if you are comfortable with the price range and have enough capital to do everything you want to do you will end up have more success and a great chance at business longevity.
There is a lot to think about as you are just starting out. If you do nothing else listen to these five pieces of advice.