How to Invest In Real Estate: A Beginner's Guide
Put Your Money to Work Today
So you want to get started in real estate investing? While there is no simple answer or method that works for everyone, this guide is designed to help demonstrate how the door to such available assets can be opened to YOU.
"When you invest in real estate, your goal is to put money to work today and make it grow so you have more money in the future," writes Joshua Kennon, an Investing for Beginners Expert. "You have to make enough profit, or "return", to cover the risk you take, taxes you pay, and the costs of owning the real estate investment such as utilities and insurance."
Kennon contends that once you understand the basics of the game, real estate investing really can be as conceptually simple as playing monopoly.
Determine the best areas to look for properties.
Some new investors make the mistake of limiting their search to areas close to their home. But often better rental areas may be located a little farther away, according to realtor Molly McCluskey.
"New investors may think they need to live near their properties in case tenants call about repairs or other problems," she said. "But in reality, if the home is put into good repair before your tenants move in, those calls should be few and far between."
There is also the matter of finding the right property. Be sure to pick an area where vacancy rates are low and choose a place that people will want to rent.
Be Calculated and Deliberate
Real estate is not something to do on a whim. Such a venture is a lifelong pursuit to take control of your financial future. Get-rich quick schemes do not work.
As an investor – you will struggle. You will make mistakes. You will fail. The successful investors are the ones who can take those experiences and turn them into lessons to improve their skills.
Research. Read. Then Research Again.
Do Your Homework. On the opposite end of the spectrum are investors who heard about real estate being a great investment and jump in with both feet – unsure of where they are going to land. Sometimes these investors get lucky and make it big (and usually go on to be the next big guru) but the majority of the time these investors fall and fall hard. Don’t be like them. Do your homework. Study the niche you want to invest in and learn everything you can about that subject.
"Buying real estate is about more than just finding a place to call home," writes Andrew Beattie of Investopedia. "Investing in real estate has become increasingly popular over the last fifty years and has become a common investment vehicle. Although the real estate market has plenty of opportunities for making big gains, buying and owning real estate is a lot more complicated than investing in stocks and bonds."
Create a Written Plan
Would you take a road trip across the country without a map? Then it makes sense to treat take your journey to financial freedom with at least as much care.
If you are not sure how to get started, take a look at this Complete Business Plan Template Pre-Populated With All Required Sections. This CD-Rom comes in MS Word and MS Excel format. All of its charts and graphs automatically update so you can complete your plan quickly and easily. And it includes all sections and all financial statements required by the federal Small Business Administration.
Do The Math (And Keep It Simple)
The math involved in a real estate investment is basic, at about a fifth grade level. For example, Income minus expenses equals cashflow. A gallon of weed killing spray costs $20 but a good lawn mower is going to cost $200.
That’s the kind of math you need. Use such basic mathematical analysis to make sure a deal is solid. Use a simple spreadsheet to analyze a deal or spend $10 - $20 and download a very investment property calculator.
Trust the numbers and don’t let your emotions make decision. Real estate is a number’s game. Forgetting that is the quickest way to fail.
Cover Your Assets
As with all other investments, there are risks involved. A friend told a story on Facebook about how the buyer of a property allowed the people living there an additional two weeks to move out. How did they repay him?
The renters urinated all over the garage and house. Then put the keys to the double cylinder deadbolts on the counter and urinated on the keys. The investor had to dawn bio hazard gear to secure the property.
Even when a property seems like an ideal investment. You can end up with a bad tenant who damages the property or, worse still, end up having no tenant at all.
Scammers, squatters and plain-old irresponsble people can leave you with a negative monthly cash flow. Keep a prudent cash reserve in case you have to scramble to cover your mortgage payments and/or deal with damaged property.
Stay on The Journey for More Knowledge
Of course, this guide is not an all-encompassing "how-to" manual. There are many more nuances and facets to real estate investing.
But here we have a broad-stroke overview of the best ways to start down your path to financial freedom through real estate investments.