Tips for Beginners in Real Estate Investment
Originally posted on WilliamNakulski.com
When seeking the best business opportunities for building wealth, few offer as much potential as real estate investments. Though it can be remarkably profitable, jumping into a such volatile market has its risks. Both financial and legal issues are not uncommon and can pose difficult problems for those navigating the field. However, becoming a successful investor can be done if approached with determination and intelligence. As always, knowledge is key, so seek your education and then proceed wisely, and with caution.
The first decision to make in real estate investing is whether you would prefer to flip houses, or enter long-haul investing. Flipping houses has been somewhat glamorized by the recent surge in television shows across the country portraying the industry as a quick-return business. What most tend to gloss over is the time and money put forth in order to make that investment profitable. One alternative for the hands-off investor who simply wants to invest their capital passively is to either seek an active partner or invest in an opportunity where a trusted manager with a good track record is in place.
Flipping homes typically requires at least a month or two of consistent work, and can result in between a few thousand or several hundred thousands of dollars in profit depending on the given market and your market research ahead of time. Often, beginners in house flipping will see loss before profit due to a tendency to focus too long on renovations or decor, or not fully understanding the market in which they purchased the home. Experience will benefit you, so do not let any properties that end up costing money to deter you from continuing. Instead, it is strongly advised that you seek mentoring or a partnership with someone with a successful track record in that market. Half of any profit while learning the right way is greater than any loss. There is no substitute for experience, but seek positive experience from those who can teach you properly.
Long-haul investments on the other hand, are generally purchased with the expectation that little renovation will be needed, and, in the case of multi-unit residential properties, will offer rental income. The issue with this strategy is that it will most likely take more time before seeing any profits, thus the amount earned going against mortgage payments often causes financial issues for the landlord. However, this investment is generally deemed more stable than flipping houses, depending on the market. Even during the recession, rental costs did not drop.
Speaking of financing, taking the first step in real estate investment can be expensive, and funding those expenses can be difficult. Zero-down options are available, but have high levels of risk due to the unknown duration of how long it could take to see profits while operating with potentially higher costs. Always be careful not to over-leverage yourself. Some lenders however, may offer lower down payments closer to 5% or 3%, so seeking the best deal with several lenders would be well worth your while. A different approach that may be beneficial is partnering with someone of great wealth, though it’s important to have a solid exit strategy in this case for the sake of the relationship.
One of the most important steps in real estate investment is obtaining insurance. This is the surefire way to protect your investment from litigation due to unsafe conditions or accidents, and the needs vary based on long-term or short-term investments. General wisdom suggests long-term rental properties should always have policies with stipulations detailing what is covered by insurance, and the responsibilities of the renter. It is also advised that Short-term investments must have short-term insurance policies in place. Long-term contracts are unnecessary in this case if you are planning on offloading the property as soon as you can.
When starting out, be cautious of diving into investments by yourself. Though it may appear attractive to avoid sharing profits, first-time investors are bound to struggle without help. Working with a realtor for your first two or three purchases can greatly help in better understanding the market, finding the best houses or properties to invest in, and gaining valuable experience along the way. Remember that 100% of zero or a loss cannot ever compare to the benefits of working successfully partners. It is also important to understand the most successful investors work with multiple partners, each one focussing what they are best at, resulting in an optimal outcome.
If you need help discussing your real estate investing needs or would like guidance towards seeking specific knowledge, coaching or mentoring for any area of real estate, feel free to reach out for a brief consultation or referral to an appropriate expert:
William Nakulski
847-929-9495
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