Investing in real estate can be very rewarding, but it can also prove to be very challenging and demanding. Patience and knowledge are very important parts of being a successful investor in this industry. When it comes to investing, everyone has different goals and aspirations, but there is one thing that all investors have in common: they invest in order to make money. Here is a list of the top 10 tips that will help you become a successful real estate investor.
Tips from the Pros
1. Do your homework. There are many important aspects to investing that you need to have a good grasp of before starting, including having a good understanding of your local real estate market as well as the negotiation process, how buying and selling properties works, and what type of financing to use. By doing your homework, you will have the advantage of knowing how to find the best deals, realizing when someone is trying to scam you, and how best to approach the process. Investing in yourself is the first and most important step in becoming successful in this industry.
2. Make realistic offers. The recent economic crisis made the housing market crash, which resulted in a lot of properties being foreclosed on or becoming distressed. Prices on these properties are very low, which makes this an ideal situation for real estate investors to make substantial profits. Unfortunately, this has created a lot of competition, which means you can’t make low-ball offers. Still, be careful not to make offers that are too high; you have to find the right balance when making an offer. Banks and owners with distressed homes are in a hurry to get rid of these properties, but that doesn’t mean that any offer will be accepted.
3. Have financing ready. Say you find the perfect deal, the owner accepts your offer, but you didn’t start looking for financing in time. Not being pre-approved for financing will most likely result in you losing that deal, unless you have enough cash to pay for the property. The owner will probably be in a hurry to sell so, by the time you find a lender, they will accept someone else’s offer, and you will lose the deal as well as the time you put into finding it. Finding a good lender and developing a relationship with him will save you the trouble of losing great deals because you weren’t quick enough.
4 Overestimate your costs. Many investors lose money or barely break even because they haven’t correctly estimated the amount of money that they have to use for home repair and improvements. When making estimations, it’s recommended that you overestimate the cost of the repairs and underestimate the cost of the property after repairs. Some homes can be in really bad shape when you buy them, especially if they are foreclosed homes, which makes it even harder for you to clearly estimate renovation costs. The previous owners may have intentionally damaged the house or apartment because they were being evicted, even stealing home appliances or lighting fixtures.
5. Focus on the local real estate. When people talk about the real estate market, they usually refer to the national market. Fortunately, the prices on the national market don’t necessarily reflect local real estate prices. The best thing you can do is find the area that you want to invest in, and then try to only focus on specific sections of this area that seem like they would be the best to invest in.
6. Avoid speculation. The surest way to make money in the real estate industry is by investing for value. Buy property based on its current and future value, instead of buying property hoping that the price will increase in the future. Speculation is a lot like gambling, and can put you out of business and leave you indebted before you even realize what happened.
7. Invest in areas that you know. Especially if you are a new real estate investor, concentrating on areas close to your home is a great idea. Knowing the area will help you observe the trends in sales and rentals much easier, and act faster when a property comes on the market.
8. Understand that you will make mistakes. Everyone makes mistakes, even the top players in the real estate industry. The only difference is that they have recovered and learned from those mistakes. Don’t look at mistakes as setbacks, but steps in the real estate investment learning process. Of course, this whole learning process will be a lot easier if you also learn from other people’s mistakes and try to avoid making them.
9. Develop relationships. Relationships are extremely important to the real estate industry. Whether you like it or not, you need to develop your people skills and make as many relationships as possible with people in the same business. Having good contacts with lenders, construction companies, and real estate agents will make your life a lot easier. LinkedIn and Twitter are great tools to help you with this.
10. Start small. Starting small means that you will have less risk involved and it will help you better understand what you need to do in order to become a successful real estate investor. Many investors fail in the beginning because they think that they know enough already when they are starting out. Starting small allows you to apply what you have learned and see if you have what it takes.
Like many others have done, you can achieve financial success by investing in real estate, but it all depends on your goals, knowledge, and work ethic. Following these top 10 tips will help you get on the right path to becoming a successful real estate investor.