How to Be a Successful Real Estate Investor

Real estate is an incredibly lucrative industry. However, tapping into its potential is not as easy as it might seem. With an abundance of options on the market, there come just as many risks, which can lead to severe consequences if not assessed adequately. This is why most people who go into this kind of venture unprepared ultimately leave the game with a sour taste in their mouths. 

Even with thorough preparation, success is never guaranteed. If you want to be a successful real estate investor, you need to be a little bit intuitive and highly informed. Luckily, this article can help you with the latter. Here’s what you need to know before you dive into the world of real estate investing.

Create a Good Foundation of Knowledge

The first step in mastering something, real estate included, is conquering the basics. This means you must get the hang of the terminology, paperwork, laws, regulations, options, and anything else you might come across along the way. While it is possible to learn as you go, it’s always wise to do your best to bring the possibility of rookie mistakes down to a minimum.

Fortunately, this shouldn’t be much of an issue as there is an abundance of information available online. Real estate investing blogs and YouTube are excellent places to start. Soak up as much as you can, as this will help you feel more confident when you actually start doing business.

Familiarize Yourself with the Market

Once you nail down the basics, you can move on to more specific things. The real estate market you choose will be your main playing field, and it is imperative to feel comfortable in it as a real estate investor. 

Focus on a particular area and research everything you can about it. Current trends, demographics, buying power, spending habits, unemployment rates, types of properties, etc., are just a few of the factors you will need to keep in mind.

Moreover, you will need to learn about home values, prices, and rent; among other things. A comparative market analysis, a local and trusted real estate agent and property management partner can assist you with that.

Narrow Down Your Focus

Real estate investing comes in many shapes and sizes. Trying to juggle all of them, while technically not impossible, is certainly not recommended. Instead, aim to narrow down your focus on a specific niche. This will allow you to genuinely master the know-how you need to be a successful real estate investor.

Some niches you can explore are:

• • • Single-family homes: Due to their popularity among renters, these present an excellent investment opportunity (about 80% of 1836PM’s entire portfolio). While some real estate investors run from rentals because of the variables that come with them, such as maintenance, legal compliance, tenant relationships, etc; the rewards are well worth the hassle. 
      • • • If you might be considering turning your owner-occupied home or short-term rental (ex: Airbnb) into a long-term rental, then you may consider renting storage for the extra furniture to make the transition more seamless.
            
    • Condos: One of the most affordable investment opportunities, especially in hot markets.
      
    • Multi-family: A multifamily home is any residential property that contains more than one housing unit, such as a duplex, a townhome or an apartment complex. This type of investment is best suited for seasoned real estate investors as the more units involved the more complex factors there are that go into making it successful.
      
    • Commercial: This branch is entirely different from residential real estate, so it’s essential to do your research before dipping your toes in it. It also contains many different niches within itself, some of which are retail, office, industrial, storage, etc.

Build Equity

Equity is what makes real estate investing so attractive. It grows by itself and builds your wealth with the help of appreciation. Simply put, this means that if you play your cards right, you could literally earn money simply by owning a property since you can expect its value to rise.

But how do you build equity? 

• • • Purchase a property with a big down payment and a low LTV (loan to value).
      • • • Typical down payments for real estate investments range anywhere from 20-25% of the total value of the home. But every real estate investor’s situation and goals are different. So think about your ideal approach and work with a great team to help you get there.
    • Use your cash flow (your income minus your expenses) to pay off the mortgage.
      • • • Don’t forget to save for a maintenance reserve fund as part of your expenses. Maintenance is the number one issue presented with owning a rental property, and you will always need to be prepared to act quickly when the need arises.
    • Pay off your mortgage as fast as you can by overpaying or making extra monthly payments.
      • • • A 15-year mortgage term is always going to be more ideal than a 30-year term when it comes to earning that ideal ROE (return on equity), however, with a great strategy in place you can still reach your financial goals faster. 
    • Improve your property with high ROI (return on investment) projects. 
      • • • When you perform certain renovation or makeover projects to your property, that means you’re investing into your investment. Which in turn builds upon the equity of the property and earns you money in the long run.
    • Hold your property and remember this is a long-term game. 
      • • • Appreciation is the result of home values going up over time (5.6% annually over the last 22 years), so therefore, your property earns you passive income simply by remaining yours.

Stay Up-to-Date

Fluidity is one of the most exciting and, at the same time, terrifying characteristics of the real estate industry. Because of its ever changing nature, keeping up with the trends and changes when it comes to things like legal processes and procedures, market behaviors, economical and local, state, and government factors, etc. is a must.

Never Underestimate the Risks

Real estate investing is a business, and it should be treated as such. Much like in any other line of work, you will come across a myriad of risks, some of which will be hard to predict or reduce. While you should do your best to play it safe and keep one step ahead, it’s still a good idea to have a backup plan. A rainy-day fund and partnering with an experienced and knowledgeable team will lessen the blow of potential mistakes and allow you to recover more quickly and with fewer consequences.

Stay on Top of Your Taxes

Since taxes are an essential and unavoidable part of the real estate world, having a good understanding of the rules and regulations that apply to you is imperative. For example you’ll want to know specific tax deductions you can claim like expenses or depreciation, or factors that might increase your taxes (and by what percentage) like appreciation and economical trends. 

If you don’t want to run into trouble with your finances, hiring an accountant to handle your books might be a good idea. This will allow peace of mind that you’ll need to focus on more important parts of the business.

The Bottom Line

Although it seems like a shortcut to prosperity, the world of real estate investing is everything but easy and simple. If you want to be a successful investor, you need a lot of knowledge, focus, perseverance, and even a bit of luck. Since risks can never be entirely mitigated, you should never venture into this lucrative line of business without something to fall back on.

Although quick profits are not uncommon, it would be a huge mistake to let them lead your decisions. If long-term success is what you are after, you will need to open your eyes wide and sharpen your reflexes. 

And if you’re looking for professional and comprehensive Austin property management services, then look no further! 1836PM has a dedicated and experienced team of property managers that are here to help guide investors through the process of owning a successful rental property. We look forward to partnering with you to help you reach your financial goals!

Contact Us:

BDM@1836pm.com

512-994-4323

By: Kayla Gonzales, 1836PM Marketing Manager