10 Tips for New
Real Estate Investors
Many investors today want to
add real estate to their investment portfolios, but they don’t understand the
complex nuances of real estate investing or how to begin the process. Real
estate investing is substantially different from investing in stocks, bonds,
and CDs, and it can seem overwhelming to brand-new investors.
Several years ago, an investor called me
to buy a rental property after losing a great deal of money in the stock
market. He was excited to begin his real estate investing career, but was terrified
of investing in something new. In fact, at his first closing, his hands shook
so much that he could hardly sign his name on the documents. Today, he owns
eight houses and has become quite successful. We laugh whenever we recall how
nervous he was in the beginning.
But real estate investing doesn’t have to
be difficult or scary. When I teach people how to invest in real estate, my
philosophy is to maximize return while minimizing the risks. When done
correctly, real estate investing is one of the safest and best long-term
wealth-building tools in the world. With that in mind, here are 10 tips to help
you successfully launch your real estate investing career.
1. Real
estate investing is a business, and you should treat it as
such. Start by developing a good business plan, detailing the nuances of
starting and running your business, with realistic goals over time frames of
one, three, five and 10 years. If you don’t know how to write a business
plan, you can find help at the Small Business
Administration’s website.
2. Check
your credit report to determine your ability to finance investment property.
Most lenders today require 700 or better FICO (Fair Issac Co.) scores from
borrowers who want to buy investment property. Also, make sure that your total
debt-to-monthly-income ratio is low. Often it makes sense to pay down
outstanding credit card debt or car loans in order to improve your debt ratios.
You’re entitled to one free credit report per year from the three major credit
bureaus (Trans Union, Equifax, and Experian), but they’ll only provide your
history, and not your score. Instead, try Credit Karma to
get both.
3. Find
a good bank or mortgage broker in your area if you’re financing your
investments. Realtors (real estate agents who belong to the National
Association of Realtors and must adhere to a code of ethics) are good sources
for recommendations, or you can ask other investors whom they’ve used. You
might want to do this even before you start your property search. If you’re
paying cash, you’ll need to prove you have the funds by submitting a recent
bank or brokerage statement when you make an offer.
4. Determine the best areas
to look for properties. Some new investors make the mistake of
limiting their search to areas close to their home. But often better rental
areas may be located a little further away. New investors may think they need
to live near their properties in case tenants call about repairs or other
problems. But in reality, if the home is put into good repair before your
tenants move in, those calls from tenants should be few and far between.
5. Talk
with other investors about local real estate. Join a real estate club in
your area (do a quick Google search to find them). Real estate clubs are great
places to network with other investors, lenders, and repair service providers.
You can often pick up helpful advice about your local market from other club
members. Some communities offer courses on real estate investing through adult
education or local real estate brokerages. If you can’t find a real estate club
or course, consider an online investing forum. Yahoo Groups lists
dozens of real estate groups. The Real Estate Investors Forum of Tampa Bay, for example, has
been around since 2002 and has more than 1,100 members.
6. Consider
multiple sources for buying properties. New investors may think they can
only purchase homes through their local Multiple Listing Service (MLS), or by
banging on doors in run-down neighborhoods looking for distressed sellers. But
sometimes you can find much better deals on real estate auction sites, such as Auction.com, and these
sites make it possible for buyers to easily make purchases in locations beyond
their immediate area.
7. Spend
time reading about real estate investing. A tremendous amount
of free information exists today online about real estate investing. When
purchasing a book, look for those that offer practical guides on buying,
flipping, renting, and selling properties. Avoid books that claim you can make huge
sums of money in 30 to 60 days or 25-year-old books detailing techniques that
may no longer work.
8. Find
a good Realtor to help you locate properties. Not all Realtors are
experienced or even adept at helping investors. Before the real estate crash in
2007 and the subsequent onslaught of foreclosures, only a small percentage of
Realtors would even work with investors. Since then, many Realtors have taken
courses and suddenly claim to be “experts” on foreclosures. Make sure that you
choose a Realtor who has sold a large number of investment properties, and also
understands concepts such as return on investment (ROI), net operating income
(NOI), and debt service.
9. Look for a return greater than 1 percent
per month of sales price. An old maxim of real estate says that a rental
property yielding 1 percent of the sales price per month is a good deal. In
other words, if the home cost $100,000, you should get $1,000 per month in
rent, or about 12 percent annual yield. But in many areas of the United States
today, home values have declined substantially and investors can now achieve
greater than 1 percent per month returns.
Let me share two examples of homes that I
purchased with cash in 2013. The sales price of the first was $62,000. It rents
for $1,050 per month, an annual yield of more than 20.3 percent. I bought the
second one for $39,900, and it rents for $795 per month, an annual yield of
23.9 percent! Even factoring in repairs and other initial expenses, the
yields are still 15 percent and 18 percent, respectively, on the two homes.
10.
Learn from the best. To achieve success, model your investing decisions after
what other successful real estate investors in your area have done. Search
Google for real estate clubs in your city, or try Meetup.com.
Above all, remember that like anything
else, the harder you work and the more effort you put into your real estate
investment business, the greater your ultimate reward will become over time.
Good luck!
Este post, escrito por Ethan Roberts, fue publicado originalmente en www.auction.com
el 01/abril/2014.
Ethan
Roberts is a real estate writer, editor and investor. He’s a frequent
contributor to InvestorPlace.com, and his work has been featured on
Money.msn.com and Reuters.com. He’s also written for SeekingAlpha.com and
MarketGreenhouse.com, and was one of five contributing editors to
TheTycoonReport.com. He’s been investing in real estate since 1995 and has been
a Realtor since 1998. He also teaches classes on investing in residential real
estate.
No hay comentarios:
Publicar un comentario