Getting into the world of real estate investing? Needless to say, the goal of real estate investing is to actually make money—but too many people do just the opposite. How do you end up on the winning side of the equation? Well, there’s always an inherent risk in real estate investing, and you won’t make a great profit 100% of the time. However, real estate investing has the potential for tremendous success! Here are some ways to save money and start growing your successful real estate empire:
Do lots of research, and plan ahead
This might not sound fun to you, but we assure you, it’s necessary. No one is born with the amount of knowledge it takes to get into real estate investing, and they don’t teach it to you in school either—so it’s all on you. When you’re putting this much money on the line, you want to have a solid plan for it that’s backed up by extensive research. Before you even start shopping, you should spend a good amount of time reading books and articles on the subject, talking to professionals, gaining some local expertise from agents and investors in the area, and deciding whether it’s a good endeavor for you. Then, once you’re ready to get started, use that knowledge and research to map out a solid investment model that accounts for your budget, timeline, level of expertise, et cetera.
Have a team of pros
Yes, we know—hiring pros will cost you money. Isn’t this supposed to be about saving money? It might seem contradictory, but sometimes you have to spend money to save money. Unless you’re incredibly experienced and knowledgeable in the entire scope of real estate transactions (and if you were, you probably wouldn’t be reading this article!), you will need a team of professionals to guide you through the processes of shopping, getting a loan, inspecting, remodeling/repairs, legal situations, and all the other complexities of buying real estate. You’ll need to develop good relationships with an experienced local real estate agent, an appraiser, an inspector, a lender, a closing attorney, and a team of construction and maintenance people who can spruce up a property and do repairs. You won’t have to try to do it yourself, so it’ll save you time and stress, and these people are really good at their jobs. Having a team of pros is invaluable in the long run and it’s a surefire way to propel you to success.
Beware of costly repairs
Costly repairs can pop up at any time. Of course, it’s best to be aware of them before closing, but that’s not always possible. Foreclosures and other poorly maintained properties might seem like an excellent deal, but all too often, they come with costly surprises like structural issues, plumbing and wiring problems, renovations that aren’t up to code, et cetera. No house is immune to costly repairs, but you can minimize the risk with a thorough home inspection and, if possible, a bit of knowledge about the home’s history. Even when you’ve owned a rental property for a while and properly maintained it, unfortunately, repairs can still crop up. Be prepared for this and budget accordingly, and certainly don’t cut corners when it comes to installing, renovating, and maintaining. No matter where you are in the buying/renovating/renting/selling process, keep potential problems in mind, and plan accordingly.
Budget for mortgage, taxes, insurance, advertising costs, HOA fees, and more
What if you can’t rent or sell the house in the time period you had hoped for? Will you have enough cash flow to cover mortgage, taxes, insurance, and (if applicable) HOA fees? Will you have the resources to market the property for as long as it takes to sell or rent? It’s not uncommon for a home to sit on the market for a few months, even if it’s a great property. Even with experience and planning, you can’t account for everything, and you never know if a home will sell or rent immediately or if it will take some time. Make sure to budget for this possibility and decide how long you’re willing to wait for the property to sell/rent before you move on to an alternative exit strategy.
Have a backup plan, or two
What will you do if you can’t rehab and resell the property as you had planned? Will you rent the house, or offer a lease-to-rent arrangement? Will you consider selling it to another investor? To avoid the aforementioned costs of holding a rental property while waiting for it to sell or rent, you need to have more than one exit strategy. Even if you do lose money (it happens! It’s just part of the business), you will minimize the money lost if you plan ahead and formulate a smart a backup exit strategy or two. Your team of pros can help you out with this—anyone who’s been in real estate for long knows that not everything goes according to plan, so they’ve probably dealt with similar situations and know the right thing to do in your particular market.
If you’re a beginner in real estate investing, don’t feel like you have to make multiple or large investments right away. That will come later, once you have more experience. The pros will tell you that it’s necessary to have a steady stream of investments and continuous growth, but don’t worry about that. It’s true that you’ll need more than one investment property if you’re really going to make a business out of it, but on the flip side, the more you invest, the more potential you have to lose money—so it’s smart to start with a single, lower-risk investment until you’re more comfortable and experienced with the process. For now, just dip your toes in the water and gain some solid experience. You can always add more investments later, but you can’t go back in time to erase the damage that will likely result from getting in over your head.