Real Estate Investing: Is This Your First Time?

Real Estate Investing is a great way to earn cash flow when done properly. Besides the tax advantages and the equity you are acquiring, the fact that others (renters/lessees) could be paying most, if not all, of your mortgage is very enticing. There are so many good reasons to get started in real estate investing. But how do you begin?

With research and planning. Start by listening to podcasts and reading articles on investing. If there are local meetings where investors converge, go, be vocal and proactive at them. Get an agent, but not just any agent. One designated as a Realtor®. This trademark denotes someone who is committed to being a part of the National Association of Realtors (NAR). There are many part time agents out there, but you want someone who is full time, knowledgeable in their field and who completes ongoing continuing education. Someone with years of experience and a sales record in the investment side of real estate, as that is a completely different realm from residential real estate. Interview multiple Realtors but only stick with 1. Together you can work on defining what your goals are and what kinds of properties you are interested investing in.

So what kinds of properties appeal to you? Is it a SFR, MFR, commercial, industrial, retail or mixed use property? Are you looking to buy & hold, fix & flip, Airbnb? Are you ready to be a landlord? The most important thing to consider is location. I have talked about how important location is to investing in a previous blog, but I can't stress that enough. For example, Pittsburgh is seeing a lot of growth due to it's stable housing market, affordable purchase prices and higher resale values. It was recently named as one of the top up and coming tech hubs that are still very affordable to invest in. In the city/cities you are considering, you have to research the various areas, find out what their economic growth and development is. What are the rental rates and turnover, what major retailers have moved in, is there ongoing new construction or perhaps a renewal of that area? Hot markets emerge in most cities and it's important to find those "up and coming" neighborhoods that are just on the cusp of blowing up, so you can buy in low/sell out high, or keep and collect till it's earning potential changes. But in order to invest in any location, you first have to learn and understand investment terminology, translating that language into a plan of action.

So many phrases and acronyms are used in investment analysis and you need to be aware of them. Terms like cap rate, cash flow, gross debt service ratio, vacancy provisions, comparables, contingencies, gain, absorption rate and acronyms like COC (Cash-On-Cash), ROI (Return on Investment), LTV (Loan to Value), GOI and NOI (Gross and Net Operating Income), OER (Operating Expense Ratio), DCR (Debt Coverage Ratio), PITI (Principal, Interest, Taxes, Insurance) and CCR (Conditions, Covenants & Restrictions) are just some of the many many many terms used in real estate investing. Learning what they mean and how they are used in calculating the risk and reward of a property investment is crucial. So learn all you can, increase your knowledge, talk to fellow investors. Hire professionals like Realtors or Wholesalers but understand the differences between the two as they are very unique. Add Property Managers, Attorneys and Accountants when needed and as your business grows. Acquire knowledge from success stories as well as failures. Define your strategy prior to entering the market and you will be better prepared. It may seem overwhelming in the beginning, but as you get used to using the terminology and employing the strategies, you will become more confident.

But what if the thing you aren't feeling the most confident about is the ability to purchase? It may seem daunting to start, feeling that as a first timer you don't have the capital to buy. But you have to start somewhere, right? Not everyone has the cash lying around to purchase outright. So understanding different types of loans like Conventional, FHA, VA, Hard Money, Home Equity and Special Purpose helps. Talk to different lenders and understand the terms of the various types of loan you qualify for. Also know how refinancing and equity work. As a new Investor you may not have a lot of money for a down payment. You may not think you need the 20% down that is indicative of a conventional loan, but be aware that while an FHA loan has a lower down payment, it also brings higher demands in the form of very stringent guidelines that an FHA appraiser will determine. And FHAs are only available to house hackers (those living on the property they are investing in). Still though, comparing and doing your calculations based upon the loans you qualify for is certainly beneficial. So with that, get a pre-approval prior to looking at your first property. Don't put the cart before the horse. You want to know what you qualify for first and foremost!

With investing in real estate, there is a lot to learn so don't feel you have to accomplish it overnight. As with anything in life, trial and error are the best learning tools. The key is in acquiring a complete, all encompassing, education so can make your investment venture more successful. All Real Estate Investors were once first time Investors and you can be too!