When someone says “real estate investment,” it can mean different things to different people. Things like buying and flipping houses or property management come to mind. No matter the route you take to profit as a real estate investor, here are some best practices to keep your competitive edge (and your money in your pocket!).
Make a Plan
Approach your real estate investment as a business with both short and long term goals. Spend time writing, adjusting, and revisiting your business plan. Having a visual of your goals will help you stay organized and on track, and it will help you see minor setbacks for what they are—just minor.
At the start of your investment career? Make sure your finances are a big part of your plan—are you going to borrow investment capital? Will you personally provide the funds? Get familiar with the financial requirements for investment properties, as they can be more stringent than that of a primary residence.
Understand the Risks
Real estate investing involves more than buying a property for a great low price and then turning it around with a rehab sale or as a rental property to make money. There are inherent risks involved at all stages of the game—risks that a property is damaged, risks that the expenses to update the home are far greater than anticipated, risks that the market could change, risks that a deal goes south—and being aware of what may happen will help you plan for when it does.
Know Your Market
Effective investors acquire and maintain an in-depth knowledge of their selected markets. This requires ongoing research on current property values, mortgage rates, changes in consumer spending habits, unemployment rates, and going rent rates, just to name a few. Knowledge of the current conditions will help you plan for the future and be well-prepared for any changes in a property’s income potential.
If it wasn’t clear above, knowledge is power. Researching your market and related rates once is not enough. You need to stay in-the-know, especially where it really counts, as with laws, regulations, and any changes in codes or zoning. Investors who don’t are at risk to not only lose business momentum but also to face legal ramifications if laws or codes are violated. Maintaining updated knowledge will help you adapt to any changes.
Invest in an Accountant
Are you a tax expert? If “no,” is your answer (as it is for a majority of us), find a qualified, reputable accountant that you trust. Taxes comprise a significant portion of a real estate investor’s annual expenses, and it is difficult to keep up with current tax laws. The costs will likely be negligible when compared to the headaches and tax penalties you could end up saving.
Find Your Niche
Once you’ve been in any business for a while, people tend to gravitate toward what interests them most. In real estate investing, developing a focus like this can help elevate your business. Narrowing down will help you really dive into the research mentioned above, master your market, and reach your long-term goals.
Effective real estate investors don’t go it alone. Your accountant is not the only expert you’ll want to consult, as there are various other roles that will help you succeed like appraisers, contractors, or mortgage brokers. Find people you trust in all of these corners and build relationships with them. Embrace other people’s expertise. Successful investors know that it’s almost always worth the additional costs. While you’re at it, consider finding a mentor as well, and learn from his or her experiences as you go.
Run Your Business with Integrity
Never underestimate the power of a strong, honest reputation. There are not ethics regulations binding real estate investors, but this business involves partnering with other people. A good reputation goes a long way, and effective investors know that it’s better to be fair than to see what they can get away with.
Build a Network
Utilizing that strong reputation, get out in the community and meet people. Lean on your mentor for introductions, attend real estate workshops, or join a nonprofit board. All of these are great ways to expand your network and widen the circle of those who know you’re investing in real estate. The larger your network, the larger your pool of opportunity. This network will send referrals your way—see below!
Successful investors will generate a significant portion of their business from referrals, and a majority of them will come from their established network. This means again that it’s critical to treat others with respect. Everyone from your tenants to your lenders to your contractors—anyone with whom you have a business relationship. Make sure that people leave their interactions with you feeling good, and they will send more business your way. They will want you to succeed.
Real estate investing is a challenging business that requires constant hard work, planning, and expertise. It also requires relationship building and conducting affairs with integrity and respect for others. These best practices have helped investors succeed, and if you follow them, your chances of success will increase!