Thinking about real estate investing? There are many things to know about real estate investing. Property investment requires a lot of research and preparation prior to beginning. Real estate investment comes with uncertain risks and failures. But don’t let the downsides intimidate you. With good management strategies and minimal debt initially, you can enjoy long-term financial freedom with a steady cash flow.
Understanding the ins and outs of real estate investing is necessary for any future investor to become successful. This guide discusses tips for first-time property investors.
How to Get Started in Real Estate
1. Understand the Finances
A big mistake many first-time investors make is underestimating the costs of property investment. Many costs are involved in purchasing, running, and managing an investment property. Often, investors underestimate costs such as repairs or property taxes and insurance. Understanding the extra costs will ensure investors maintain a positive cash flow.
2. Find the Right Location
Researching an area before buying a property can help make the difference between a very good or bad investment experience. The best way to make the most profit is by picking a flourishing location. Some factors that create a profitable area include a low crime rate, a good school district, low property taxes, and a booming job market. The right location will also produce a larger population of potential renters.
3. Hire Professionals to Help
After investing in real estate, investors must decide whether to hire a property management company or manage the property themselves. Although hiring a property manager can be a sizable expense, there is a lot of value in working with experienced professionals. Property management companies bring their expertise and work directly with tenants by showing properties, completing maintenance work, collecting rent, posting eviction notices, and more. Property managers are a great investment to make any real estate investing business easier.
4. Read Books Prior to Investing
Reading books on real estate investing can help first-time property investors become experts on the topic. Books are a great way to gain firsthand knowledge from experienced investors and professionals in the real estate industry. Some books may discuss investment strategies, while others help readers develop financial goals. A few reading suggestions include:
- “The Book on Rental Property Investing” by Brandon Turner
- “The Millionaire Real Estate Investor” by Gary Keller
- “ABCs of Real Estate Investing” by Ken McElroy
- “Long-Distance Real Estate Investing” by David Greene
5. Know the Laws
There are many legal obligations investors should be aware of before buying real estate. Landlords must know and enforce tenants’ rights, including lease requirements, security deposits, eviction rules, and fair housing laws. Property and real estate laws vary by each state but can be found here. Understanding these laws will help any new property investor avoid unwanted legal situations and fees.
6. Consider the Risks and Rewards of Every Purchase
Whether the first purchase is high or low, a small or big property, move-in ready, or a fixer-upper, every investor should consider the risks and rewards. Some aspects to consider include:
- Potential cash flow
- Market predictions
- Tenants
- Location
- Taxes
Every first-time real estate investor should thoroughly research before buying any property. One can never know too much information about any investment business, especially when there’s a lot of room for error. With these tips, investors can avoid failing to start their real estate business.
Tips for First-time Real Estate Investors
1. Strategize for Maximum Profit
If you’re planning to own and operate a rental property yourself, then it’s essential to gradually plan how to increase your returns. You can even purchase a unit based on your financial needs after researching its appreciation and rental rates. You can also strategize about flipping/reselling it for increased profits in the future.
2. Real Estate Investment Advice from Experienced Investors
In California, several real estate networking events host experienced investors. Research and ask them essential questions on how they look at market trends. This is one of the best ways to gain professional insight through their successful approaches in the past.
3. Stay Updated
Rental laws in California are vast and ever-changing. Keeping yourself updated with the terminologies, laws, and market trends is important. Otherwise, you may have to face legal consequences for not adopting them.
4. REIT
Investing in a real estate investment trust (REIT) is also an option. REITs are agencies that own and operate real estate properties such as retail units and apartment buildings. By law, they must distribute 90% of their profits as dividends.
However, market fluctuations and lesser returns remain possible, which can erode your wealth. Also, several factors affect capital markets that are beyond your control.
5. Connect with Local Investors
Continuously engaging with local professionals is good throughout your investment career. You can acquire valuable insights and advice for those entering the investment world for the first time by establishing connections with experienced investors. Feel free to invite admired investors for a casual coffee meeting, as networking can lead to finding a real estate mentor and potential opportunities like partnerships or joint ventures.
6. Learn Basic Math
If math isn’t your favorite, it’s time to embrace it. Basic calculations are vital in real estate, whether it is tallying supply costs or evaluating a potential deal. Try learning spreadsheet tools, especially common Excel functions—they’ll be your time-saving ally in navigating the complexity of the profession.
7. Choose a Property Management Company
If you’re unsure about managing the kaleidoscope of requirements for your property, it’s best that you take the help of a property management company. With a dependable one, you would save your time and be relieved from the responsibilities of managing your units.
How to Buy Your First Investment Property
To buy your first investment property, you need to identify a suitable property, secure financing, and analyze the deal before you finalize the purchase. For-sale options can be found on various listing platforms. After selecting a property, you need to determine the financing method, whether it’s an all-cash payment or a traditional mortgage with a 20% down payment. Regardless of the financing, a well-thought-out strategy is essential, outlining details for calculating profitability and ROI (return on investment). Post-purchase, the investor proceeds to lease the property.
How Much Can Real Estate Investors Make?
The amount real estate investors can make depends entirely on how much work they want to put in. For example, if an investor owns one single-family property, they may only make a few thousand dollars in one year after paying off the mortgage and various expenses. Another investor may take on multiple projects for resale in one year and make hundreds of thousands of dollars in net profit.
However, projects with large profit margins require more capital investment and risk. Furthermore, investors should be prepared not to receive an immediate payoff after their first real estate deal. The investing profession requires persistence and a lot of hard work.
How To Buy An Investment Property With No Money Down
To get an investment property without spending your money, you can seek help from private lenders. Instead of paying all cash or putting down a 20 percent payment with a traditional mortgage, investors with less money might find private lenders as their best choice.
Start Investing in California’s Real Estate Market with BFPM
By now, you must have a good idea of how to invest in real estate. For more information on real estate investing, check out Top 5 Reasons Why You Should Opt for Residential Real Estate Investing.
If you have any questions about property investing in California, reach out to Beach Front Property Management!
Trevor Henson
Trevor Henson is an experienced entrepreneur (10+ highly-successful start-ups) and property investor with a demonstrated history of building and leading teams in investment property management environments, maximizing returns for property owners, and optimizing properties through construction management and re-positioning. He…Learn more about how we can help. Customized solutions for large portfolios!