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3 Things You Must Do to Succeed at Real Estate Investing
Here are three simple guidelines to follow if you plan to succeed in real estate investing. Not everything, of course, but at the very least, you must be willing to commit to these things if you want to be a successful investor.
Will we be watched?
Accept the Basics
Real estate investing involves the acquisition, holding, and sale of rights to real property with the expectation that the proceeds will be used for future cash outflows and thus generate a reasonable rate of return on the investment.
More profitable than stock investing (which usually requires more investor equity) real estate investing offers the advantage of growing real estate assets significantly. In other words, by investing in real estate, you can use other people’s money to increase your rate of return and manage a larger investment than would otherwise be possible. Plus, with a rental property, you can use other people’s money to pay off your loan.
But apart from the average, real estate investment offers other benefits to investors such as yields from a year after tax, equity buildup through asset appreciation, and cash flow after tax sales. And, non-monetary rewards such as pride of ownership, regulatory security of ownership, and portfolio diversification.
Of course, capital is required, there are risks associated with investing in real estate, and real estate investment property can be highly regulated. However, real estate investment is a source of wealth, and that should be motivation enough for us to want to do better at it.
Understand Return Issues
Real estate is not bought, held, or sold on emotion. Real estate investing is not a romantic affair; it’s about return on investment. As such, prudent real estate investors often consider these four basic return factors to determine the potential benefits of buying, holding, or selling an income property investment.
1. Cash Flow – The amount of cash from rent and other income less operating expenses and debt service (mortgage payments) determines the property’s cash flow. Furthermore, real estate investing is all about cash flow from the investment property. You are buying an income rental property, so make sure the numbers you rely on later to calculate cash flow are true and accurate.
2. Appreciation – This is the growth in value of the property over time, or the future selling price minus the original purchase price. The basic truth you need to understand about appreciation, however, is that real estate investors buy investment property income. It stands to reason, then, that the more profit you can sell, the more you can expect your property to appreciate. In other words, make a decision about the increase in income and throw it into your decision.
3. Loan Repayment – This means the reduction of the loan from time to time leading to an increase in equity. Because lenders evaluate rental properties based on income, when purchasing a multi-family property, provide lenders with clear and concise cash flow statements. Properties with income and expenses accurately represented to the lender increase the investor’s chances of getting the right financing.
4. Tax Shelter – This represents a legal way to use real estate investment property to reduce annual or final taxes. Nothing is one-size-fits-all, however, and the savvy real estate investor should check with a tax professional to be sure what the current tax laws are for the investor in any given year.
do your homework
1. Create the right attitude. Get rid of the idea that investing in rental properties is like buying a home and develop the mindset that real estate investing is a business. Look beyond curb appeal, interesting amenities, and desirable floor plans without contributing to revenue. Focus on numbers. “Only women are beautiful,” the investor told me. “What are the numbers?”
2. Develop a real estate investment objective with meaningful goals. Have a plan with defined goals that optimize your investment strategy; is one of the most important factors of successful investing. What do you want to achieve? When do you want to access it? How much are you willing to invest comfortably, and what rate of return are you hoping to make?
3. Research your market. Understanding as much as possible about the real estate market conditions surrounding the rental property you want to buy is a necessary and sensible approach to real estate investing. Learn about housing prices, rents, and living costs in your area. You can turn to a qualified real estate professional or talk to the state tax assessor.
4. Learn the terms and conditions and how to calculate them. Familiarize yourself with the nuances of real estate investing and learn the principles, formulas, and calculations. There are sites on the internet that provide free information.
5. Consider investing in real estate investment software. Being able to do your own rental property analysis gives you more control over your cash flow and a better understanding of the property’s profitability. There are software providers on the internet.
6. Create a relationship with a real estate professional who knows the housing market and understands the rental property. It will not further your investment goals to spend time with an agent unless that person knows about the investment property and is willing enough to help you find it correctly. Work with a real estate investment professional.
There you have it. As brief an overview of real estate investing as I can provide without boring you to death. Just take it to heart with a dash of mind and you’ll do just fine. Here’s to your investment success.
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