Investing in real estate for the first time can be one of the most exhilarating feelings in the world. It is literally an adrenaline rush for me, similar to one I get playing sports. That burst of adrenaline can lead to tough consequences though if the decision was a bad one. With so many new real estate investors joining the market every day, here are a few things every beginner needs to know before getting started in real estate investing.
The word investing should always imply that gains are not guaranteed. Many new investors come into real estate investing with the mistaken belief that real estate prices always go up (after all – the world isn’t getting any bigger right?). Unfortunately, while this is definitely true in the long run, that often doesn’t help in the short run.
Many real estate investors lost not only all of their investments, but their credit worthiness and their own personal homes as well during the financial crisis in 2008. A lot of them had the mistaken belief that home prices would continue to climb forever. This believe is what created the bubble that eventually popped.
Understand the Finances
If there is one single trick that can differentiate a successful real estate investor from a mediocre one it is finance. There are dozens of different ways to finance real estate properties and rental properties. As a new investors you may have the mistaken belief that you have to have a down payment of forty thousand dollars just get your first property. If this were true, there would be a significantly less number of real estate investors in the world.
Instead, real estate investors find creative ways to make other people’s money work for them. Whether they use hard money loans, personal loans, peer-to-peer loans, commercial loans, or some other type of financing, they typically try to put as little of their own cash into real estate properties as possible. This gives them the ability to stretch their cash further.
Most real estate investors try a few different financing methods, then settle down in one or two that they become particularly proficient at. Once you get experienced, you an break off from the normal forms of financing and start getting creative and coming up with your own ways of financing your real estate purchases.
As with anything in the world, success typically comes from being really really good at one thing, rather than decent at a lot of things. This is true with real estate as well. Don’t just purchase properties all over the country that seem like a good deal. Rather, find a few specific places that you can start to research and understand. As you choose a niche and start digging into the market you will better understand what is driving the real estate market in that area. You will also get a good idea of where are good places to buy and bad places to buy. Most importantly, you will be able to identify when something truly is a good opportunity in real life, rather then a good opportunity on paper. My niche is Georgia. I use the Georgia MLS on Fizber to constantly to understand the market. If you don’t live in Georgia, use the MLS from where you do live.
Finally, if possible, find a partner to invest with. Most successful real estate investors have at least one person (it can even be a spouse) that they partner up with. This keeps you from making rash decisions because you will typically have to prove to your partner why something is a good deal. Often times when you are doing the research to come up with the proof then you discover something that would make the deal less than ideal.