This post was written by our contributor, Kristi.
Real estate investing may seem like a risky business, and it can be, but just about anyone who works hard enough and smart enough can use real estate investing as a lucrative way to increase their net worth.
Retirement based on cash flow streams from rental income properties is a very real possibility.
Before you get started in investing, though, there are several things you will want to take into consideration, to determine which property would be the best investment for your personal financial situation.
If you’re considering getting started with real estate investing, consider these fifteen tips for breaking into real estate investing.
1) Look for a good investment
So what is a good real estate investment? A good real estate investment is any real estate property that increases your net worth through a fair rate of return on your equity.
2) Buy cash flow-positive properties
When looking for an investment property, you need to calculate the estimated cash returns on the property for that area to make sure you’ll be getting a good deal.
3) Buy a property that you love
Real estate ownership takes a lot of time and effort. It’s a lot easier to part with time and money on a property you’re fond of.
4) Go from personal residence to rental
A great way to get your feet wet with real estate investments is to put your personal property up for rent. If you plan to live in a house for a few years before turning it into an investment property, you’ll be better equipped to handle repairs on the house. Living in a property and making changes along the way is a cost-effective, long-term solution for getting started in real estate. You’ll also get better interest rates on the property if it’s your primary residence when you buy it.
5) Don’t buy fixer uppers
Fixer uppers are tempting to purchase as a real estate investment because of their lower price point on the market. When looking for a rental property, though, unless you plan to live in the fixer upper first, it’s much more cost-effective simply to buy a solid, reliable home that needs little to no repairs.
6) Overestimate your costs
Things perpetually break down and need repairs in properties, and the home repairs inevitably cost more than you think they will. If you’re looking into real estate investing, make sure you have a fairly sizable cash reserve to cover the expected and unexpected costs of property management and repair.
7) Buy in working class areas
Look for properties in working class areas where rental properties don’t last long on the market. For example, if you live in the city, look for a property that would appeal to young graduate students or young workers.
You’re more likely to have your property sit vacant, costing you thousands of dollars if you buy in a neighborhood typically occupied by homeowners. It’s not impossible to rent homes out in nicer neighborhoods, but it’s easier to fill a property with tenants where rental properties have a higher turnaround rate.
8) Pick moderately priced properties
Keep in mind that expensive homes in sought after areas like the ocean front usually have low cash flow returns. You’d be better off investing in a more moderately priced property with a higher cash return.
9) Know the neighborhood
Don’t buy a property in an area you’re not familiar with. Know the history of the neighborhood, and do your research. Find out how the schools rank, what the crime statistics are, and if there is any noise or air pollution that could affect your ability to rent out the property.
10) Buy local
Unless you plan on hiring a property manager, take the travel distance into consideration when looking for a real estate investment property. Sometimes you can go months without having to make repairs or visit the property, but other times you’ll be at the property every day that week. It’s a lot easier to manage a property that is close to home.
11) Buy a one bedroom apartment
There will always be people looking for a one bedroom apartment. College students, bachelors, widows, and single working class people all usually look for a one bedroom unit, since it’s the most affordable housing option. People don’t like to pay for more house than they need.
12) Learn from the experts
If you’re looking at getting started with real estate investing, reach out to the experts in your community. Join a real estate investing club and reach out to experts online. Invite a local broker to lunch and pick their brain for ideas on your tab. If you want to be successful with real estate investing, surround yourself with successful real estate investors.
Also, constantly read new real estate books, blogs, and eBooks about smart real estate investing strategies.
13) Hope for the best, plan for the worst
When you own a property, it’s essential that you hope for the best but plan for the worst. Between expensive repairs and downturns in the market, you need to have a backup plan and money in savings to help cover life’s unexpected financial difficulties.
14) Plan on long-term investments
The longer you own the property, the greater your return will be. Don’t hop in and out of property ownership. A little bit of patience goes a long way to increasing your returns.
15) Don’t quit your day job just yet
It seems like common sense, but too many real estate investors have gone belly-up with their finances because they relied too heavily on turn around profit or rental streams of income, and then the market took a downturn, leaving them with not enough cash flow to cover their income needs. Until and unless you have enough diversity in your real estate investments to cover downturns in the market or tenants who don’t pay their rent, you’ll need to keep working your day job.
Stay on top of your investments
Real estate investing can be a rewarding and profitable business endeavor, but it can years for your property or properties to become reliable income streams. Make sure you’re getting a good deal on your investment property and that the property is increasing your net worth.
Do the research, know the area, and ask for help from those in your community that have had success. Once you do make a decision on a property, prepare for when things go wrong, and have cash saved to cover the high cost of repairs or expenses. Stay on top of the market, and educate yourself so that you’ll feel more confident with your investment strategy.
Do you invest in real estate? What advice would you offer to someone looking to break into real estate investing?
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Start by renting out a room in your house! This is the best way to learn about screening tenants, tax benefits and understanding ROI with minimal risk.
The next best advice is to buy cash flow right away. Never count on appreciation in Real Estate!
Great tips! We are wanting to eventually get into rental real estate. We have rented out a room in our home for many, many years now, but would like to go bigger!
Hannah UnplannedFinance That’s great advice! Our first home was way too small to rent out a room, but for those with lots of space, definitely look into it!
SenseofCents Real estate can feel daunting to get into, but once you get started it’s hard to walk away from.
I want to eventually invest in real estate. Seems like a good way to add to your retirement account if you do it smartly.
We’ve always been interested in rental properties, though have yet to take the plunge. My college job was maintaining and repairing rental properties so I have a little bit of the inside scoop on that end. I don’t think I’d care whether I love the property as long as the rate of return is good.
I’m a full time real estate investor who has been investing for over 30 years. These are good tips except:
Buy a property you love? Uh no! A real estate investment decision should be based on the numbers and not your emotions. Don’t ever fall in love with a house.
Buy a 1 BR? Tenants in one bedroom apartments, which I have a few, are very transient. I have found that there is a lot less turnover, which can cost you a lot, renting a 3 BR to a family.
Best of luck investing.