For first-time real estate investors, even those who’ve owned stocks or have engaged in other passive investing activities in the past, the prospect of purchasing real property to rent or “flip” for profit is a daunting one. If you’re committed to making a go of it, you’ll need to understand what to expect.
While it’s impossible to distil everything prospective real estate investors need to know into a single article, these six considerations factor into just about every transaction.
- It’s Critical to Know Your Market
Many first-time real estate investors choose to invest in markets they know well. This is a smart move: The universe of challenges and opportunities facing Miami real estate investors is very different from the universe of challenges and opportunities facing Seattle real estate investors. While there’s no law against investing in property outside your hometown or home state, you may face a steeper learning curve — and higher risk — on less familiar ground.
- Understand the Basics of Cash Flow Projections
If you don’t yet know how to run a formal cash flow projection, familiarize yourself with the process now. This is a crucial competency for aspiring real estate investors; cash flow potential is a major factor in determining a property’s suitability.
- If You’re Buying a Property That Needs Work, Know What You’re Getting Into
Many real estate investors dream of getting rich on fix-and-flips alone; fewer have the organizational skills and drive to turn these dreams into reality. You know better than anyone else whether you’re capable of taking on such projects, but at a minimum, you’ll want to know what you’re getting into. Speak with real estate investors with fixer-upper experience to learn what’s really involved.
- Find a Partner Whose Expertise Complements Your Own
Speaking of other real estate investors: It never hurts to have a partner (or more than one). Look for fellow investors whose skills — and personalities, since you’ll work closely together — complement your own.
- Find Reliable Contractors and Maintenance Professionals
Even turnkey properties need maintenance. Before you begin investing in earnest, build a list of reliable tradespeople and maintenance professionals. You’ll have to call them, eventually; better have their numbers now before an emergency strikes.
- Know What It’ll Take to Market Your Property
Investment properties don’t market themselves. Whether you’re looking to rent out your property for the long haul or simply get tenants in the gate while you decide how to proceed, know that it’ll require time and money to get it done. Start planning, and budgeting, before you’re ready to show your cards.
Ready to Begin Your Real Estate Investing Career?
To reiterate: This is not an exhaustive list of the considerations you’ll need to take as you dip your toes into the real estate investing waters. There’s plenty more to know about the process, which is part of the reason it’s so important to work with an experienced partner.
It’s also important to understand that the life of a full-time real estate investor is not for everyone. Passive investing is a different story — for those with the capital and risk tolerance, it’s a common pursuit. It can’t be said enough: You need to know what you’re getting into before you feel it’s too late to turn back.