If you want to build wealth in a scalable and sustainable fashion, focus on real estate. While there are hundreds of different ways to make money, nothing has a track record as impressive as real estate investing. But it takes some work to become successful. (And there are plenty of mistakes that can be made along the way.) So make sure you do your research and crawl before walking.
5 Tips for Success
As you get started in real estate investing, here are several tips, principles, and best practices that will set you up for success:
- 1. Have a Plan
Your investment strategy will never go exactly according to plan – but you need one nonetheless. As you get started in real estate investing, formulate an overall plan of what you want to do. For example, is the plan to invest in one single-family rental property every year for the next 10 years? Or are you saving up to buy an apartment building? Or maybe you want to buy a duplex so that you can live in one half, rent the other half, and have your mortgage covered?
Being thoughtful and thinking ahead will allow you to make more intentional decisions as you move forward with offers, transactions, and investments.
- 2. Don’t Try to Time the Market
Many newbie real estate investors think that if they can just time the market, they’ll be rich in no time. However, nobody can predict the future – let alone someone who is new to the industry and doesn’t have a firm grasp on all of the unique dynamics of the marketplace. There are hundreds of variables that influence how the market acts – the majority of which are totally unpredictable.
“And market dynamics aren’t the only variable you have to consider in your decision,” Green Residential explains. “You also have to think about interest rates, your current levels of debt, your current income, your current risk tolerance, your personal preferences, and of course, the qualities of the individual property you’re buying.”
There’s nothing wrong with studying market dynamics and making your own internal predictions about where things are going, but don’t try to time it perfectly.
- 3. Take Emotions Out of It
There’s nothing more dangerous in real estate investing than getting emotionally attached to a deal. The moment you get emotionally attached to a transaction is the moment you lose all leverage. Take emotions out of the equation and view everything as an equation. When you find a good deal where the numbers work, take it. If the numbers don’t work, move on.
- 4. Diversify as Much as Possible
Diversification can be a powerful strategy for real estate investors, as it helps to spread risk, capitalize on opportunities, and enhance potential returns. Avoid getting so focused on one type of investment – e.g. single-family rentals, REITs, or office space – that you put yourself in a compromising situation if one area of the marketplace collapses.
By investing in a diverse range of properties and markets, you can minimize the impact of any single investment’s poor performance and create a more resilient portfolio. Diversifying your real estate portfolio also provides valuable learning experiences, as it forces you to become familiar with different markets, property types, and investment strategies. You can then turn around to use this and make more informed decisions.
- 5. Find Good Tenants
When investing in rental property, don’t underestimate the importance of finding good tenants. Good tenants pay their rent on time, ensuring a steady cash flow. This consistent income is essential for covering mortgage payments, property maintenance, taxes, and other related expenses. Not only that, but responsible tenants are more likely to treat your property with care, minimizing the risk of property damage and the need for costly repairs. (Well-maintained properties also contribute to better long-term appreciation in value.)
Ultimately, good tenants cause fewer headaches for you. They follow lease agreements, address concerns promptly, and communicate effectively. This results in less time spent dealing with tenant-related issues, permitting you to focus on other aspects of their investment.
Winning With Real Estate
There’s no singular path to real estate investing success. There are dozens of different techniques and strategies that will get you to where you want to be. Having said that, you’ll get better results if you follow the tips and principles that those before you have relied on. Don’t reinvent the process when there’s already a formula for the taking!