Real estate investors know that investing can be an excellent way to diversify your portfolio, bring in additional cash flow, and set yourself up with tangible assets that are often considered a positive way to hedge against inflation.
There are several logistics about real estate investing that you will need to learn, and here are our top 5 tips to help you to become real estate investor:
Tip #1: Know the real estate market
What do you know about the market in which you wish to invest? If you don’t know it well, you might pay too much for a property, or you might end up missing out on a fantastic deal.
Mindy Jensen, community manager at BiggerPockets.com, suggests you find out how much houses in excellent condition are selling for. She suggests finding out what kind of discount is usually offered for houses in poor condition and learning how rents are priced. “Learning your market is an essential part of your education,” she explains. “And by ‘market,’ I mean the market you’re looking to invest in. It doesn’t have to be local.”
One of the best ways to learn your market is to start studying it. Connect with a real estate agent in your target area and have him or her send you MLS listings so you can get an idea of what people are listing their homes for. If you do your homework ahead of time, you’ll know whether that four-bed, three-bath listing for $300,000 is a deal—or overpriced.
Tip #2: Consider your location
Location matters. The last thing you want to do is tie yourself to an investment in an area that doesn’t make sense. Many real estate professionals recommend looking for the “worst house in the best location,” as there is room in the market for improvements that can bring additional value.
Location also comes into play if you’re investing in single- or multi-family rentals, as you’ll want to invest in markets where there is a demand for rental properties. Location is also a consideration if you’re going to be managing these properties yourself or are hiring a property management company.
Tip #3: Invest in your real estate education
There are so many real estate investors who have paved the way for beginners —why not learn from their experiences? There are thousands of books, websites, and podcasts on real estate investing. Brandon Turner of RealEstateinYourTwenties.com offers a great list of 7 Must-Read Books for Real Estate Investors. It’s a great place to start.
Jensen brings up another good point by suggesting you ask yourself why you want to invest in real estate. “This is a pretty important question to answer because your ‘why’ determines your ‘how.’ Do you want passive income? That’s more of a buy-and-hold strategy. Do you want to make the world a more beautiful place? That’s more of a rehab approach.”
In addition, consider networking with other real estate investors in your local market who can offer guidance and insight into the particular market. Ask to see their properties and learn more about what makes them successful. Networking with local contractors and real estate professionals can also be helpful.
Tip #4: Know the financial ramifications for real estate investors
The government offers tax incentives to real estate investors, and understanding these can be key to your success. The depreciation write-off is perhaps the most significant. You can also see deductions for mortgage interest, insurance, and maintenance expenses. Be sure to consult with an accountant to fully understand the tax benefits available to you.
When evaluating a rental property, many investors use the one percent rule to determine if they want to look further into the investment. In essence, investors want the gross monthly rent (before expenses) to equal at least one percent of the purchase price. A $300,000 property, for example, would need to bring in $3,000 in rental income to be a good fit under the one percent rule.
Some investors take this a step further with the two percent rule. Ultimately, how you evaluate your real estate investments will depend on your particular market, financial situation, and aggressiveness.
Tip #5: Become a licensed real estate agent
If you looking at becoming a real estate investor, there are a number of advantages to becoming a licensed real estate agent. The most obvious benefit is that you can save on commissions. There is an added benefit to this: Because you are saving on commissions, you can offer more for properties without having more money come out of your pocket. This can give you an edge over other buyers for hot properties.
As a real estate agent, you will have faster access to listings because you can check the MLS. Many of the big sites, such as Zillow, are delayed when it comes to showing what’s for sale. If you are a real estate agent, however, you can view properties faster than other investors. You can also set up showings without having to wait for an agent. If you are interested in making an offer on a property, you can do it yourself right after you see it.
Bonus Tip: Real estate investing education
Ready to get started with your career and learn more about real estate investing? Learn the steps it takes to get your real estate license and get started today!