Everyone seems to be in on the DIY/House Flip trend, with new ‘investors’ showing up every day. Most of them get in too deep before they realize how much they really don’t know.
Do your research! What areas are renting, and for how much? What are the current market trends for residential and multi-family properties? Most of the time, beginner investors fail because they’ve bought a rental property in a hurry and didn’t spend enough time doing basic due diligence.
Ryan Forman-Smith, founder of Esquire Real Estate, brings invaluable market insight and real property experience from his years as an attorney. Here are his "dos and don'ts of property investing.
DO get your finances in order.
Financing is the main component of any real estate transaction. Ensure that you have a good credit score, read all about the different options for financing a rental property, and find out the best places to acquire a loan. You will need a clear understanding of your income, cash flow, and expenses to best understand if property investment is right for you. If purchasing an investment property would immediately (or in a short amount of time) force you and your family into financial hardship, it’s not going to turn around anytime soon.
DO stick with deals that have a high return on your investment
Your appropriate return depends entirely on you. Most new investors come in with dreams of returns in the 15-20% range, which for the new investor becomes a significant challenge. Often, properties with this high of a return exist in the low income/government assistance realm, which isn’t a problem if you’ve properly prepared yourself. The more a property needs in terms of updates, repairs, or remodels to bring it to a rentable standard, the more you will need to spend to get it there, which affects your bottom line. Remember, don’t forget to plan for emergencies and for any unexpected expenses that may pop up, and NEVER EVER buy a property without title insurance.
DON’T buy a second property until the first is making you money.
This doesn’t mean the first property has paid itself off, simply that it is putting money into your pocket regularly. Remember, it's great while it's occupied, but it quickly becomes a liability once your tenants vacate. Quick turn arounds and good marketing will keep your properties occupied and you in the positive cash flow. Once you’re comfortable with your first property, you then may begin to search for another.
DON’T be afraid to ask for help.
You can’t learn everything in a day, a week, or a month. There is a lot of information out there, and it can be daunting when you’re taking your first steps. A qualified real estate broker can help you navigate the depths of real estate investing, but make sure you find one that has experience with rental properties and real estate investments.
Like with anything else, there are people who have become specialized within this area of real estate, bringing you valuable experience and expertise that other agents won’t have. Evaluating a property as an investment takes a different approach than finding someone a home, and a professional that understands the difference will be invaluable to someone entering the market for the first time.