Real Estate Investor 101
Many people see investing in real estate as a way to generate cash flow, build-up a nest egg and have tenants pay your mortgage for you. While that is a successful strategy for many people, there is a technique to it. It isn’t as easy as simply buying a property and renting it. Uneducated investing is how you get into trouble. There are certain principles you need to follow to help ensure a return and be a successful investor.
- Don’t Assume Rents will continue to climb.
I see a lot of green investors bank on the appreciation of rents over time. While that is something that can happen with a value add structure, it is not something you want to make a purchasing decision on. Rent growth at the top of a real estate cycle is a very risky play, because when a recession hits a lot of the time you will have vacancies and rent stagnation.
- Run Your Numbers
They key to any property is cashflow. The problem is a lot of investors simply look at the rental income vs the mortgage. They forget you also have to take into account property tax, insurance, utility bills, repairs and maintenance, property management fees and other regular expenses. While also including an allowance for vacancies and future capital expenses (roofs, new A/C, etc.).
After all of this, if the property still cash flows then it is something you should consider purchasing.
- Know Your Market
I love investing in markets I live in because you will never know a market better than the one you are in daily. Never go into an unknown real estate market by yourself, always have an experienced local team who thoroughly understands it. This point cannot be emphasized enough.
- Hire a Professional Management Company
So many investors try to save money by self managing. While this can be done, it is a lot of work and you have to stay on top of it. If you or the people you are investing with are planning on self managing make sure they are experienced and capable of taking this on.
- Understand Real Estate Cycles
This is a big one that gets overlooked by many investors. You have to understand how the market cycles. From Recovery, to Expansion, then hyper supply, and finally a recession. Things are more predictable than you think and there is a right time to buy in the cycle and a time to wait and hold. The only way you can know if it is a good time to buy is by understanding this cycle.
- Invest with a Reliable Real Estate Company
In the past seven years who could have failed in real estate? Each year everything appreciated and rents grew. You honestly had to try to fail, but now is very different. MC Companies has a proven track record both when the market is up and when it goes down. It is important that whoever you invest your money with has this kind of experience. The next few years there will be massive opportunity, but you need a company that is experienced to navigate it for you, because there will also be massive room for error.