by Theresa Bradley-Banta
I know far too many people who have invested in real estate in the past decade and are now wishing they had been a lot more careful with their investments. Here are some of my top tips for investing in real estate. Some advice, if you do not understand the tips, you are probably not ready to invest in real estate. Blunt, but true.
If you are new to investing in real estate, hire and work with professionals. In addition to following the advice of your professionals, be sure the deal conforms to the guidelines you set. These tips are to assist you in setting your own personal real estate investing guidelines and in leading your team. My best advice? Talk to mentors—people who have already had success in real estate investing—work with professionals, and get some education on your own before jumping into the real estate game.
Here are my top tips for investing in real estate:
- Everything’s negotiable. Always.
- Always make money on the purchase. This means you could turn around and sell it today, for a profit. If you are not embarrassed about your offer, it is too high.
- Have a tight acquisition strategy and do not deviate. What is your financial goal for each deal? Cash flow? Equity? Flip? Hold? Refinance?, etc.
- Understand, and apply, the time value of money when analyzing the deal.
- Never, ever fall in love with a property — this is a business!
- Do your market research. Know what the property is worth. Do not base market value on what other properties are listed for in the area, look at recent comps for sold properties. See our post on The Top 20 Criteria for Locating Hot Real Estate Markets to determine if your market is solid. Do your homework.
- Run the numbers, complete due diligence and inspections. Know the true condition of the property and the true costs of needed repairs.
- Always have the property inspected by a professional.
- When you run the numbers, be sure you know what all expenses will be, do not take the numbers the seller, broker or realtor provide as fact.
- Never use pro formas in your acquisition analysis and exit strategies.
- Know what the seller’s motivation is for selling; this will assist you in your negotiations and in structuring the deal.
- When dealing with the seller, never make disparaging remarks about the property.
- Always be aware you are creating lasting relationships.
- Always shop financing.
- Have several exit strategies in place at acquisition. Markets change.
- Know your worst-case scenarios and determine if you can ride them out. Again, markets change.
- If you are planning to sell or flip a property, be sure you can handle carry & holding periods in the event you are unable to do so immediately.
- In addition to working with professionals, you must know the rules of the real estate game. This includes contract language, deeds, mortgage terms, fees (such as points, private mortgage insurance), closing costs, entity structuring, potential penalties (such as prepayment penalties), etc.. This knowledge enables you to lead your team! Education is King!
- When in doubt, ask. Be humble.
- Have your team ready at acquisition. This includes property management, maintenance, accounting and CPA, and legal, to name a few.
Real estate entrepreneurs, what are your tips? I’d love to hear from you, please leave a comment below!