Investing in real estate can be very rewarding. However, it can equally be a traumatic experience if you go in blindly.
Investing intelligence is the difference between success, i.e., making your investments make money, and failure, i.e., your investments costing you your capital.
In this PropertyTalk article, we share tips on getting set up so you can become a successful property investor. These recommendations are tried and tested by us and many real estate investors, so hopefully, they will be a guiding light for you to navigate the highs and lows of being a landlord in an ever-changing market.
The first attribute you need to become a successful property investor is the right mindset. Never underestimate the damage you can do to your investments by acting without knowledge and expertise. The real estate investor mindset requires the following:
- Thought before action
- Understanding of your risk tolerance
- Being objective and unemotional
- Acknowledgment that property investing is a marathon, not a sprint
Your property investments will take years to mature and provide a healthy profit. You can use various strategies, some that, when timed right, will reward you quickly, e.g., property speculation. However, buying and quickly selling is a high-risk strategy, so you need to know you can cope with the stress that comes with the risk of potentially losing your capital if you’ve not timed the market correctly.
For example, you buy a home for $500,000 and put it up for sale for $550,000, but buyers are biting, and after a couple of months on the market, you get a buyer keen to pay $490,000. You have lost $10,000 and the amount you paid in conveyancing fees and mortgage repayments.
2. Have a Plan
Create a business plan to gauge your successes and failures. A business plan also helps you handle the unpredictability of the real estate market. Include the following elements in your plan:
- Your goal: Set a goal that is suited to your finances and interests.
- Strategy: Find a strategy that will drive you toward your goal.
- Procedure: How you handle day-to-day activities or long-term events. This can include how you manage your time, how you spend petty cash, how you handle revenue/windfalls etc.
Planning also makes you an attractive prospect to private investors who may want a stake in your business. However, avoid getting involved with other investors until your business is well structured and managed using professionals, including an accountant, lawyer, and property manager.
3. Acquire Information
The property market is cyclable; therefore, there is never a time as an investor when you can turn off from knowing the market.
Information can be got from many sources including:
- Books and magazines
- Blogs like PropertyTalk
- Videos on YouTube
- Forums like PropetyTalk
4. Build Relationships
Networking, communicating and collaborating with like-minded real estate investors help you make decisions. Property investing can be lonely, so joining in discussions in forums not only boosts your confidence, it’s like having colleagues. Plus it is an easy channel to get answers to questions and input of other investors more experienced than you.
5. Overestimate Your Budget
Time and again, budget projections in real estate have proven to be pointers. Things tend to not go as planned regarding budgeting in this industry.
Overruns and delays are rampant in construction. Plus, materials can cost more due to inflation, so you must have a contingency budget i.e., a slush fund to cover unexpected costs to avoid crashing. A good number of experts will tell you to double your estimations to be on the safe side.
Buy and Hold
With the buy-and-hold property investment strategy, have a budget for the purchase price and stick to it. Always try and buy below market value, so there is some equity in the property when you buy it. For example, if the list price is $500,000, offer $480,000 or less. The seller may take the offer or suggest one less than the list price. This is how you get some home equity when you buy it.
6. Find Mentors
Anyone with more experience and success than you is a worthy contender to be a mentor. Ideally, choose mentors that have seen one or two property cycles and are actively investing in residential real estate.
Mentors can share their wisdom so you can avoid potentially catastrophic pitfalls like investing in the wrong type of property or the wrong area. They also know other people in the industry, so they can help you expand your network. Follow their advice and give value to them in return in some way, even if it’s to share your gratitude on social media or in a forum post.
Investing in residential real estate as a new property investor is easier when you have knowledge and experts. Start with a plan and always treat your investing as a business. If you have more tips, please share them with us in our comment section below.