Lately, it seems as though every show on HGTV and DIYNetwork is somehow related to investing in real estate. While the shows have made it seem like a no-loose proposition, the investors are often very experienced and playing with “house money.”
So yes, there is great risk in real estate investing- look no further than the near collapse of the economy in 2007–2008 as evidence of that. However, real estate can also provide the most consistent cash flow and asset appreciation rate than any other investment vehicle.
In order to help you mitigate the pitfalls of real estate investing I’ve assembled a list of three things that every beginner investor should know.
Read, Read, Read
There are countless articles about real estate investing scattered throughout the internet- some great, others dangerously wrong. The best resource for consistently good information is http://biggerpockets.com. Between the articles, spreadsheets, and robust community forums, you’re bound to learn the correct way to start the process.
Learn the market
Real estate is unique in that it’s a traditional marketplace with buyers and sellers except prices and inventory are set locally. So while learning the principles of investing from the industry experts, all that knowledge will only apply to the processes and principles not market specific aspects like pricing and inventory levels.
That is where I come in — an expert on local inventory and pricing.
Whether you’re a seasoned real estate investor or someone starting the process of learning, my first price of advice on learning the market is to be included in market alert emails. You’ll receive an email when any property is newly listed, sold, price adjusted, etc. Receiving constant emails on market movements will give you a better understanding of what is selling and for what amount.
While learning about investing and studying the market is essential to winning the real estate game, you can’t start playing the game without money.
If you are planning on financing the investment with a mortgage, be prepared to have a minimum of 20% of the purchase price as a down payment. Additionally, some lenders require you have 6 months of mortgage payments and other fixed costs stashed away in a bank account.
There are many sources of potential capital. Every situation is different, so I suggest that you discuss all the tax implications with an accountant. That said, here are a couple of ideas where capital can be found:
- Pull out equity in your current home for a down payment.
- Borrow against life insurance policy.
- Find a partner to invest with.
As mentioned earlier: real estate investing is fraught with many pitfalls where seemingly small errors have catastrophic consequences. If I haven’t scared you off and you still want to learn about investing, let me explain in more detail how I’ve helped many others like you achieve their dreams and earn financial independence.
Happy housing from your favorite Realtor.