Are you dipping your toes into the deep, lucrative waters of real estate investment? Then you are going to need some guidance, as we often make haphazard, uninformed decisions as beginners to real estate, and these decisions can sour our journeys before they even begin. Buying real estate should always be a carefully weighed decision based on a wide variety of factors, and we are going to help you become an expert at navigating that decision-making process.
In this article, we will share our 12 golden rules of buying real estate. These are rules we have crafted from the experience and knowledge we have gained over the years, and they will help you make your first steps in real estate a roaring success. Before you start buying real estate left and right, spend a few moments with us as we offer the guidance we all wish we could have received when we ourselves started out.
Rule 1: Buying Real Estate Is More Than A Monetary Investment
Before you dive into real estate, you need to understand that this is not simply going to be an investment of your money. This is a profitable path, but it will require a great deal of time and energy. Are your personal commitments in order? Do you have time to spare in your schedule? And if not, do you have reliable people you can delegate tasks to? The first rule of real estate is to begin your journey only when you know you can handle it.
Rule 2: Rules Can Change
The first lesson you must learn is that buying real estate is a flexible and dynamic art. Trends change on a regular basis, and often, they do so without warning. If you want to make it in this industry, you will need to embrace a certain degree of humility, an acknowledgment of the fact that there is always something to learn, and as the years go on, there will be lessons to relearn as well. Never become complacent with your strategies. Never stop learning. Never stop gathering the most up-to-date information, whether from online forums, conferences, or the news.
Rule 3: Never Neglect the Value of Your Own Home
Your primary residence is your first investment. Be sure it is a good one, as the tax-free profits you make from selling your primary residence are, in all likelihood, going to exceed what you make from the sale of an income property.
Rule 4: Take Advantage of Supply and Demand
At the heart of real estate, and business in general, are the principles of supply and demand. Your decisions when buying real estate should reflect the current needs and trends in the market. Set your sights on figuring out what the markets demand and keep a close eye on the supply, so you can buy low and sell high. It may also help to establish your brand specifically as a supplier of a particular demand. Over time, your brand will become associated with that particular demand in the eyes of the market, and that association can be highly lucrative.
Rule 5: Master Residential Investments Before Moving into Commercial Ones
As you start out, keep your focus on residential properties, as they tend to be easier to purchase, understand, and manage than commercial ones. Your prior experience as a homeowner will help you climb the learning curve of managing a residence, making you far more likely to be successful. Save commercial investments for after you develop firm footing in making residential investments.
Rule 6: No One Can Avoid the Worst Case Scenario Forever
Buying real estate always presents a degree of risk and unpredictability. When starting out, we often obsess over our plans for the future, crunching numbers and trying to figure out our expenses and incomes. It is always a good idea to have a general grasp of how the numbers work out over time, but the worst can always happen, and plans often fall through. Even the best of us must always be ready for the unexpected. If you are in this field for the long haul, learn to expect trouble so you can see it as it comes.
Rule 7: Never Cut Corners With Your Management Companies
Unless you plan on managing your properties yourself, you will need to make use of management companies. There is a wide breadth of competence when it comes to these companies, and most of us who have been buying real estate for years have had at least one horror story involving opting for the cheapest options and suffering dearly for it. Our advice: save yourself some grief, and only work with management companies you can rely on, even if it requires a heftier price tag than you would like. Otherwise, you will spend all your time resolving issues at your properties, rather than buying real estate.
Rule 8: Build Your Own Dream Team
Buying real estate is a hefty investment that requires a wide variety of skills and expertise. Do not try to make it all the way on your own. You will need a real estate agent, a loan officer, a tax advisor, and a lawyer. When picking the members of your team, look beyond their qualifications and be sure you choose people you can see yourself building cordial, long-term professional relationships with.
Rule 9: Location, Location, Location
Buying real estate successfully is all about understanding the value of location. For reliable profits, you need to select rental properties that are likely to always be occupied. For this, location is key. Look for properties in bustling city locations, places with high concentrations of professionals and students. Also, whenever possible, try buying real estate that is physically close to where you live because you will understand the area better, not to mention you will save a great deal of time in the long run.
Rule 10: Expand Your Horizons, Always
One of the keys to being a successful real estate investor is being aware of the development and redevelopment efforts around you. Keep one eye on popular spots in the city as we just recommended, but keep your other eye on surrounding areas that are close to the city but are still up and coming. These properties tend to have lower prices and higher appreciation.
Rule 11: Take Every Seller’s Numbers with a Grain of Salt
By all means, speak to your sellers to get a personal account of the property’s history, income, and expenses. However, never rely solely on these figures. Always keep in mind that if a seller is selling, their reasons may soon become your own. Evaluate the property yourself, both in terms of its physical and its fiscal condition. Consult a buying agent and use an ROI calculator to come up with your own figures.
Rule 12: Be Vigilant in Your Maintenance
When we are starting out, we often try to save as much as we can on maintenance costs, delaying the resolution of minor issues to reduce our expenses. Anyone who has been in this business for a while knows that minor issues rarely stay minor and often become extremely expensive to deal with over time. Be proactive when it comes to maintenance. Include a regular walkthrough (annual or bi-annual) in your lease agreements. Always ask your renters if there is something that needs to be fixed, and fix these issues immediately. Trust us. It will save you money in the long run.
Buying real estate, especially at the beginning, can be a daunting process. However, if you are willing to dedicate your time and effort, it can be an extremely profitable one. Follow these 12 golden rules for buying real estate, and your first steps into the market are likely to be successful ones.