You’ve been interested in property investing for a while. Your copy of Get Rich Slowly is more worn out than some people’s religious texts. And now, after years of reading up on everything you need to know about finance, you’ve decided that you want to learn how to get into real estate investing.
That’s right. You’re finally getting a taste of that delicious BRRRR profit.
How do you start investing in real estate? Are there any property investment tips out there that you can start using today?
Over time, every investor eventually develops their own working guide to real estate investing. But we have a list of hot tips about real estate investing that will get you moving in the right direction. Keep reading to get the inside scoop.
Build a Firm Investing Foundation
In 2021, the GameStop saga turned some investors into millionaires after buying shares in the video game store. But for every unlikely success story out there, the stock market can tell a dozen more tales of investors who made YOLO bets and lost their life savings in the process.
Compared to the stock market, many people expect real estate investing to be a walk in the park. After all, if you’re flipping houses or acquiring rentals, you don’t have to waste time guessing the whims of the market. Everyone and we do mean everyone, has to find a place to live.
But at the same time, finding the right investment property isn’t always as simple as browsing through the different flats for sale in your area, buying the building, and watching the profits roll in. Much like the stock market, it’s possible to make a bad real estate investment.
For these reasons, most “How to invest in property” articles like this one will talk about the importance of understanding your local real estate market before you start putting money into it.
Know How You Want to Invest
At this stage, you’ve likely pieced together what you want to invest in. And now you need to develop an investment strategy that’ll tell you what to do when you’ve got a winning property.
Have you drilled down on your property type? Luxury apartment rentals may attract tenants who always pay on time. But depending on your price point, you might have a harder time filling units simply because a lot of people just don’t make a lot of money.
Let’s say you’re considering the subsidized housing market. You’ll get the guaranteed income, and you’ll have more people applying for apartments than you can house. But you might have to spend more time vetting applicants.
Worst of all, these concerns really only matter if you’re planning to be a landlord. If your strategy primarily involves house flipping, maybe you’re less worried about tenants and more concerned about purchasing property at a discount. Regardless, it all goes to show that the last thing you want is to be in the real estate market without a game plan.
You can also explore off plan property investment. A bit of a risky one – it involves buying a property before it’s even finished construction – however, if you’re patient enough, you can really score some top-notch returns. For those seeking more bang for their buck, the below-market rates for off-plan properties (an incentive to combat any underlying fears of buying something before it’s even done) can be rather enticing. The downside to this, of course, is that you can be waiting a long time before you ever see some returns on your investment, because, as a general rule of thumb, people can only really move into a building that is fully built and safe to live.
Regardless of what you pick, this all goes to show that the last thing you want is to be in the real estate market without a game plan.
Have a Business Plan
At the end of the day, real estate investing is a business. In the same way that Nike sells sneakers and Walmart sells, well, everything, you’re selling people housing. And if none of these mega-corps would dream of operating without a business plan, it only makes sense for you to have one too.
What a lot of would-be investors don’t realize is that bringing in tenants isn’t the end of your investment. Are you hiring property managers? Will you be expanding your real estate empire or keeping things small?
And then you also have to think about how you intend to position your property. Are you trying to make your apartment building synonymous with trendy downtown living? Or is your unique sales proposition going to be your price?
These are the types of questions that your business plan will be able to answer. If you’ve been following our tips in order, then you’ve already built up property investment expertise and sorted out your investment strategy.
Putting together a business plan that encompasses your marketing and your day-to-day operations can go a long way towards making you a bonafide property investor.
Create a Financial Strategy
Although real estate is often talked about in big, you-couldn’t-possibly-mess-this-up kind of tones, there’s a scary truth about investing that nobody ever talks about:
You can make the right purchase. You can time the market perfectly. And you can do all the right things and take all the right steps, only to still lose everything.
Why? Sometimes it’s just bad luck. But in many cases, investors run into problems because they don’t have enough funding for their projects.
Maybe you’ve purchased the building, only to discover the hard way that those repairs were more expensive and intensive than you expected. Maybe you’ve spotted the type of building that would make most property investors say, “Man! I wish I’d scooped that up!”, but due to the location and the demand, the purchase price is a little steeper than you can pull off without an extra line of credit.
Will you be taking out loans? Are you planning to outright purchase your rental property with your own funds? Can you access additional funding sources if need be?
Real estate investing can surprise even the most seasoned portfolio holders. You’ll want to create a robust financial plan that takes every possibility into account.
Don’t Bite Off More Than You Can Chew
When you’re new to investing, there’s a rule of thumb that you really need to understand:
Adding to your real estate portfolio is relatively easy. But maintaining and financing those properties will often require more of your labor and more of your time than you think.
You’ve got to handle tenant complaints. You’ve got property taxes and insurance costs to consider. In many ways, doubling your properties often adds up to significantly more than double the trouble.
Once you’ve got a few properties under your belt, you’ll start to get a feel for how the process works. You and your team will establish a rhythm. You’ll be able to spot DIY repairs, and you’ll have a solid sense of how each acquisition will affect your bottom line.
But before you’ve earned your black belt in real estate investing? You’ll want to be more cautious about adding to your workload.
Think About Alternative Real Estate Investing Methods
Imagine that you’re committed to apartment rental properties. And that after considering all the costs, you’ve decided to go mid-market so that you’re not priced too low or too high.
Just because you’re only managing a certain type of property, doesn’t mean you can’t invest in other forms of real estate. For starters, there are peer-to-peer lending platforms that can allow you to finance the projects of other investors. And for another, you can dip your toe into the real estate market by investing in REITs, ETFs, and mutual funds.
Diversification is one of the most important investing tips out there simply because it can do a lot to cushion you from market ups and downs. While property investors are usually more concerned with the job market than any specific shares, the same concept still applies.
And when you’re willing to expand beyond a strategy that says “I own this property. And I’m collecting rent on it.”, you can get all the benefits of diversification while limiting your risks.
You Should Always Have an Exit Plan
Have you ever noticed how lawyers and politicians can be difficult to pin down without a direct quote? While you might not want to be that slippery with your property investments, it is still a good idea to have a this-is-what-I’m-going-to-do-if-everything-falls-apart plan.
Demand for a particular industry might suddenly go down the tubes. Major employers in your city could pack up, move, and take your best tenants with them. Heck, a pandemic could sweep through your state and leave people out of work and unable to pay you on time.
How will you respond if your investment doesn’t work out? Would you be turning to your insurance or planning to sell? Are there alternative methods of making money out of the property if renting isn’t an option?
Exit plans aren’t just for traditional business owners. Every property investor should also have a plan that allows them to walk away from investments that just aren’t yielding results.
Here’s How to Get Into Real Estate Investing
When you’re investing in real estate, you have to wear a lot of hats. You’ve got to vet your tenants, calculate your profits, manage your cash flow, and juggle multiple properties at once. In some regards, figuring out how to get into real estate investing is the easy part.
Whether you’re getting into the house flipping game or you’re buying properties to hold, however, there’s only one thing you need to ensure that your investment endeavors are a success: patience. By taking your time to assess each property, you can easily build the type of real estate portfolio that’ll make it possible for you to quit your day job early.
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