Real estate is one of the most lucrative investment opportunities available for entrepreneurs, but like everything else with big returns comes risk. If you want to invest in real estate then you need to know how to locate the right opportunities and capitalize on them. Some of the most successful real estate investors are able to leverage borrowing power to build a massive pile of assets and wealth.
Unfortunately there is a lot of bad information out there, from courses to gimmicks, all promising to turn you into a seasoned real estate investor. Truthfully, these offer nothing of value, as the basics are pretty common sense, and there are no hidden secrets when it comes to playing the market.
You must know about your specific market because they all perform differently.
“You need to be very well versed in your local market and understand it inside and out. The local job market, for example, plays a major role. If people are flocking to the area because of job opportunities it is going to create a very stable market to invest in,” explains Jake Braun of ChopperExchange.
Just because the market is booming in one city doesn’t mean that it’s the same in another one. For example, the real estate market in Orlando might look amazing on paper, but that is due to short term rentals near Disney performing well. You need to really dive into each market and understand why it’s performing the way it is.
If you are thinking about investing, spent some time to learn how to identify what causes markets to increase, and whether or not those causes are long standing or if they could be short term, which could spell disaster.
You need to understand all of the costs involved.
Real estate has a lot of additional costs, aside from the actual property. “Not only do you have real estate taxes and insurance, but if you are renting then you need to budget for repairs and expenses that come up out of nowhere,” suggests Darryl Howard of NuWays MD, a medical spa in Boca Raton.
If the water heater or AC unit goes out when you have a tenant in the residence you need to replace it immediately. You need to make sure you understand all of the costs, such as landscaping and snow removal in the winter.
Look into all financing options.
The lending market has really tightened up after the crash of the mid to late 2000s, and it’s much more difficult to secure financing for investment properties than it once was. “Today, be prepared to put at least 20% down and pay above prime rates for investment properties,” says Dana VanDeCar, COO of Optimally Organic.
Just because some lenders are advertising low mortgage rates, that doesn’t mean they apply to investment properties. If a traditional mortgage is around 4%, then be prepared to be in the 7’s on an investment property. Lenders view them as having more risk, so the interest rates reflect that.
Build your own team.
If you plan on acquiring several properties and building a large portfolio, then it’s wise to put together your own team. Working with the same realtors and lenders allows you to move quickly on deals, as you have them constantly looking out for you.
You can also consider creating your own property management company to handle the properties rather than pay someone up to 20% in fees. Once your portfolio is large enough to justify the costs it makes sense to take the management inhouse.
Understand it’s a long-term play.
“Investing in real estate is something that can help you build substantial wealth, but it doesn’t happen overnight. You need to be prepared for a long-term hold. There are no overnight successes,” says Luqman Khan, Founder of Wireloo.
The best game plan is to start small, picking up an affordable property you can carry without stressing about money. Then, if all goes well and it’s something you enjoy and understand, you can then increase your exposure and risk.
