Real estate can be a tremendous investment opportunity. And for those who are in for the long run, rental properties really can’t be beat. But when it comes to taking that crucial first step, most people aren’t sure where to start.
If you’re in this boat — looking to get started with real estate but leery to dive in — don’t worry. That’s a good sign. Being careful with any investment is always a good idea, and real estate is no exception. The more prepared you are, the greater your chances of coming out on top.
If you are thinking about investing in real estate, here are 10 considerations to help you to get off to a great start.
1. Get Your Finances In Order
Before you take the plunge, take stock of your financial situation. Is there anything that you can do to put yourself in a stronger position to invest? Things such as paying down or consolidating debt, along with working on improving your credit score, can help you to qualify for a better loan. You’ll also want to save up for a down payment. A larger down payment is ideal for reducing your monthly payments, your insurance and even your risk.
2. Do Your Research
Next, you’ll want to learn as much as you can about real estate investing and rental property management. Brush up on the basics of landlording, and get some good books that offer sound investment advice. There is a lot more involved with becoming a landlord than meets the eye, and being prepared will help you sidestep many common pitfalls along the way.
3. Start Small
While you may feel pressured into “going big” when it comes to your first investment, there’s nothing wrong with starting small. In fact, it’s how many successful investors get started. Starting small offers a number of benefits; namely, it’ll give you a chance to gain an understanding of how investing works before there’s a lot more at stake.
4. Know The Numbers
Before you commit to a property, it’s important to know exactly what type of returns you’re looking for. Start by establishing your investing criteria, and resolve to only invest in properties that meet your standards. So be sure to have an idea about cap rate and cash-on-cash returns, along with net yield and cash flow.
5. Scout Out A Location
As a new or first-time investor, you might be looking at property that’s close to home. However, be careful that you’re not limiting yourself. When you open yourself to the possibility of an investment property outside your local area, you’ll be able to take advantage of up-and-coming markets that may have better opportunities. With the property management options and resources available today, investing in out-of-town property is easier than ever.
6. Adopt A Business-Owner Mindset
Investing is a business, and you should treat it like one. Just as you’d have a solid business plan in place for a company, along with clear and actionable plans, key milestones and systems, you’ll want to do the same for your investments. Remember: Your goal is to generate a profit, so make sure you lay the groundwork necessary to do so. Don’t simply invest in the first property that catches your eye. Just as you would in a business, make sure every opportunity checks out.
7. Get A Mentor
Securing a mentor is one of the best things that you can do if you’re new to the world of investing. What better way to learn than by seeking the advice of someone who’s been there, done that? If you’re not sure where to start, consider partnering with someone who may be able to offer you solid advice in their field — for example, a good investor-friendly real estate agent. You’ll also want to peruse the Bigger Pockets investing forums, where you can find plenty of experienced investors who are willing to offer helpful advice.
8. Start Building Relationships
Along with finding a mentor, you’ll also want to start building a social circle. Work on building relationships with other investors and real estate agents. You never know when they might be able to help you find a winning deal. It’s hard, if not impossible, to succeed on your own. Fortunately, there are plenty of people out there who are willing to lend a hand. Seek to connect with them.
9. Create Rock-Solid Systems
Implementing systems is vital, especially as it pertains to tenant sourcing, screening and management. Having a system for tenant screening, for example, will allow you to ensure that you screen each applicant equally and fairly, helping to prevent harmful accusations of discrimination. If you’re not able to put the time into creating systems yourself, you’ll want to outsource the work of property management to a reputable firm or manager.
10. Remember: Cash Flow Is King
Finally, while there are a number of benefits to real estate investing — including equity growth, tax breaks, leverage and appreciation as your property, ideally, increases in value — the primary benefit of real estate investing is cash flow in the form of monthly income.
A property that is producing a solid 10% or higher return is “cash flowing,” and it’s a good deal. But if it’s not, then you’ll want to reconsider.
While buying an investment property can be a nerve-racking time, it doesn’t have to be. Being informed can help you to ensure that you’re getting off to the best start possible. So brush up on your real estate investing best practices, and then get out there and take that crucial first step to start growing your own rental empire.