Do you dream about creating a real estate investment portfolio where you can earn money while you sleep? Are you seeking to diversify your investment portfolio with tangible assets that generate steady income and generous tax write-offs?
If you’ve dreamed of getting started in real estate investing, here are 3 simple tips to get you started on your own personal journey to financial freedom.
- Know Your Market– The single most important step you can take before you purchase or invest in a property is to become intimately familiar with the housing stock in your market of choice. Do not underestimate the time it will take to become an expert in your chosen real estate market. I have spent upwards of a year looking at listings and attending open houses before purchasing rental properties. Why does knowing your market matter so much? The answer is that you want to obtain your properties at the best possible price. The only way to do so is by methodically and deliberately becoming an expert in what a property in your area should cost. When the right property comes on the market at the right price, you will recognize it and feel confident making an offer. Paying the right price for a property also sets you up for capital appreciation gains and will give you options down the road to refinance. More on the BRRR (buy, renovate, rinse, repeat) method later…
- Understand Financing Options– While finding the right property is your first priority, it will be of no use if you cannot appropriately secure financing. Before you begin purchasing real estate, it’s important to take stock of your income, assets, and liabilities so you have a sense of what banks will be willing to lend money you and at what interest rate. You must begin building relationships with banks, and in competitive situations, having a pre approval letter could make the difference in securing a property.
- Know Your Risk Tolerance– Real estate investing comes with it’s own unique risks. Property values can dip, tenants can become delinquent on rent, and costly repairs can sneak up on you. How much money your investments can make is directly tied to your willingness to take risks. You must take time to understand the risks and rewards of the type of property you are taking on. I have deliberately passed on high cash flow properties because I was unwilling to take on the risk of difficult tenants, but this is a very personal choice. I prefer to invest in lower cash flow properties with high potential for capital appreciation, which tend to attract young professional tenants. Over time, I have improved my cash flow on these properties by slowly raising rents and reducing expenses. These properties have seen steady appreciation between 7-10% of value annually.
Are you ready to start building your real estate investment portfolio? What do you think are the most important things you can do to prepare?
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