I came up with the following rules of successful real estate investing over my many years of successes and failures. These are the same rules I follow today and share with our customers at Norada Real Estate Investments.
1. Educate Yourself
Data is the new currency. Without it you are condemned to follow other people?s guidance without knowing if it?s good or bad. Knowledge will also help take you from being a ?good? Financier to becoming a great investor, and that information will help provide a passive stream of income for you or your family.
2. Set Investment Goals
A goal is not like a wish; you may want to be rich, but that doesn?t mean you?ve ever taken steps to make your wish come true.
Setting clear and express investment goals becomes your map and bullet point plan to becoming independent financially. You are statistically far more certain to achieve financial independence by writing down express and detailed goals than not doing anything at all.
Your goals can include the number of properties you need to acquire annually, the yearly cash-flow they generate, the sort of property, and the site of each. You may additionally want to set parameters on the rates of return needed.
3. Never Speculate
Always invest with a long term viewpoint under consideration. Never speculate on quick short-term gains in appreciation, even in a heated market experiencing double-digit gains. You never know when a market will top and it?s customarily 6 to 9 months later when you find. Don?t chase after appreciation. Only invest in cautious value plays where the numbers appear sensible from the beginning.
4. Invest for Cash flow
With few rare exceptions, always buy investment property with a positive cash-flow. The higher, the better. Your cash-on-cash return is directly related to the before-tax cash-flow from your property.
Cashflow is the ?glue? That keeps your investment together. Your equity will grow in time (through appreciation and loan amortization), while the cash-flow covers the operating expenses and debt service on your property.
5. Be Market Agnostic
The United States is a very large country made up of hundreds of local real-estate markets. Each market goes up and downwards independently of one another due to several local factors. As such, you need to recognize that there are occasions when it is smart to speculate in a selected market, and times when it does not. Only invest in markets when it is smart to do it not because you live there or you bought property there before. There?s a factor of timing and you don?t want to buck the trend.
6. Take a Top-Down Approach
Always start by selecting the best markets that align with your investment goals. Most investors begin by researching properties with virtually no regard of its location. This can be a major mistake if you don?t consider the investment in light of the market and neighborhood it?s in.
The best way is to first select your city or town primarily based on the health of its housing market and local economy (unemployment, job expansion, population expansion, etc.). From there you would narrow things down to the best areas (conveniences, schools, crime, renter demand, and so on.). Finally, you would look for the best deals inside those areas.
7. Diversify Across Markets
Focus upon one market at a time, amassing from 3 to 5 revenue properties per market. Once you?ve added those 3 to 5 properties to your portfolio, you would diversify into another cautious market that's geographically different than the prior one. Typically that suggests focusing on another state.
One of the base reasons for diversification in the same asset group (property), is to have your assets spread across different economic centres. Every real estate market is ?local? And each housing market moves independently from one another. Widening across multiple states helps reduce your ?risk? Should one market decline for any reason (increased unemployment, increased taxes, and so on.).
8. Use Expert Property Management
Never manage your own properties unless you run your own managing company. Property management is a thankless job that requires a solid understanding of tenant-landlord laws, good selling skills, and strong people skills to handle renter beefs and excuses. Your time costs and should be spent on your folks, your career, and searching for more property.
9. Keep Control
Be a direct investor in property. Never own real estate through funds, partnerships, or other paper-based investments where you own shares or other securities of an entity you don?t control. You mostly wish to be in control of your real estate investments. Don?t leave it up to firms. Or fund executives.
10. Leverage Your Investing Funds
Real estate is the sole investment where you can borrow other people?s money (OPM) to buy and control income-producing property. This permits you to leverage your investment capital into more property than purchasing using ?all cash? Leverage magnifies your total rate-of-return and accelerates your profit creation.
So long as you have positive cash flow and your renters are paying off your mortgage for you, it'd be dumb not to borrow as much as practicable to buy more revenue property.
1. Educate Yourself
Data is the new currency. Without it you are condemned to follow other people?s guidance without knowing if it?s good or bad. Knowledge will also help take you from being a ?good? Financier to becoming a great investor, and that information will help provide a passive stream of income for you or your family.
2. Set Investment Goals
A goal is not like a wish; you may want to be rich, but that doesn?t mean you?ve ever taken steps to make your wish come true.
Setting clear and express investment goals becomes your map and bullet point plan to becoming independent financially. You are statistically far more certain to achieve financial independence by writing down express and detailed goals than not doing anything at all.
Your goals can include the number of properties you need to acquire annually, the yearly cash-flow they generate, the sort of property, and the site of each. You may additionally want to set parameters on the rates of return needed.
3. Never Speculate
Always invest with a long term viewpoint under consideration. Never speculate on quick short-term gains in appreciation, even in a heated market experiencing double-digit gains. You never know when a market will top and it?s customarily 6 to 9 months later when you find. Don?t chase after appreciation. Only invest in cautious value plays where the numbers appear sensible from the beginning.
4. Invest for Cash flow
With few rare exceptions, always buy investment property with a positive cash-flow. The higher, the better. Your cash-on-cash return is directly related to the before-tax cash-flow from your property.
Cashflow is the ?glue? That keeps your investment together. Your equity will grow in time (through appreciation and loan amortization), while the cash-flow covers the operating expenses and debt service on your property.
5. Be Market Agnostic
The United States is a very large country made up of hundreds of local real-estate markets. Each market goes up and downwards independently of one another due to several local factors. As such, you need to recognize that there are occasions when it is smart to speculate in a selected market, and times when it does not. Only invest in markets when it is smart to do it not because you live there or you bought property there before. There?s a factor of timing and you don?t want to buck the trend.
6. Take a Top-Down Approach
Always start by selecting the best markets that align with your investment goals. Most investors begin by researching properties with virtually no regard of its location. This can be a major mistake if you don?t consider the investment in light of the market and neighborhood it?s in.
The best way is to first select your city or town primarily based on the health of its housing market and local economy (unemployment, job expansion, population expansion, etc.). From there you would narrow things down to the best areas (conveniences, schools, crime, renter demand, and so on.). Finally, you would look for the best deals inside those areas.
7. Diversify Across Markets
Focus upon one market at a time, amassing from 3 to 5 revenue properties per market. Once you?ve added those 3 to 5 properties to your portfolio, you would diversify into another cautious market that's geographically different than the prior one. Typically that suggests focusing on another state.
One of the base reasons for diversification in the same asset group (property), is to have your assets spread across different economic centres. Every real estate market is ?local? And each housing market moves independently from one another. Widening across multiple states helps reduce your ?risk? Should one market decline for any reason (increased unemployment, increased taxes, and so on.).
8. Use Expert Property Management
Never manage your own properties unless you run your own managing company. Property management is a thankless job that requires a solid understanding of tenant-landlord laws, good selling skills, and strong people skills to handle renter beefs and excuses. Your time costs and should be spent on your folks, your career, and searching for more property.
9. Keep Control
Be a direct investor in property. Never own real estate through funds, partnerships, or other paper-based investments where you own shares or other securities of an entity you don?t control. You mostly wish to be in control of your real estate investments. Don?t leave it up to firms. Or fund executives.
10. Leverage Your Investing Funds
Real estate is the sole investment where you can borrow other people?s money (OPM) to buy and control income-producing property. This permits you to leverage your investment capital into more property than purchasing using ?all cash? Leverage magnifies your total rate-of-return and accelerates your profit creation.
So long as you have positive cash flow and your renters are paying off your mortgage for you, it'd be dumb not to borrow as much as practicable to buy more revenue property.
About the Author:
Marco Santarelli is an investor, author and founder of Norada Real Estate Investments -- a nationwide real estate investment firm providing turnkey investment property in growth markets around the U. S.. "10 Rules of Successful Real Estate Investing" was originally published on the Real Estate Investing Blog.
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