Real Estate Investing Basics

The Best Piece of Real Estate Advice I Can Give New Investors

Expertise: Real Estate Investing Basics, Personal Development, Landlording & Rental Properties, Real Estate News & Commentary, Business Management, Flipping Houses, Real Estate Deal Analysis & Advice, Personal Finance, Real Estate Marketing
247 Articles Written
newbie-tips

The best piece of advice that I could give you if you’re starting your journey in real estate: On absolutely every transaction, on every single property, every portfolio that you are considering buying, always underestimate your income and overestimate your expenses.

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When calculating your return on investment, I fully understand there are different formulas out there that you can use. I do not want to be the judge of whatever formula you use. I do not want to be the judge of what you use as an expense ratio from a maintenance or vacancy standpoint. I just urge you to include even the bubblegum that you buy from Walmart. When you’re thinking about your property, you should use that as a cost on the pro forma.

That’s the extreme I want you to go to. Because trust me, unexpected expenses will happen to you. You’re going to have to replace the roof, the furnace is going to go out, there’s going to be a hurricane, and a tree is going to fall on your roof. The list will go on and on. So it is very important that on every deal you are always basing your calculations, expenses, and pro forma on the worst case scenario. Underestimate your income and overestimate your expenses.



Related: 3 Questions New Investors NEED to Ask But Don’t

Build Your Portfolio With Purpose

Then, once you have done that and the numbers still make sense and suit your end goal, then it might be worth pursuing further. One of the first mistakes that I made in my journey in real estate was buying properties for the purpose of adding a property to my portfolio. So I just was building my portfolio for quantity purposes. I didn’t really have a goal or plan in mind.

Ask yourself why are you acquiring that property. You will know why you are acquiring that property if you figure out what it is that property is going to do for you. For example, I want to earn $10,000 in passive income per month. I want to generate $120,000 in passive income per year. By acquiring that property either via cash or via leverage, does the net result enable me to get a step closer towards achieving my end goal? What is the risk or reward ratio of that property? Is it in a C-class area where the cash flow might be a little higher than a B-class area but the risk and volatility are higher? Maybe that investment doesn’t suit me because I’m looking at more hands-off passive income and I do not want to be as active in a lower-end type market. These are things you need to take into consideration. 

What’s the best advice you’ve received as a new investor?

Weigh in with a comment!

Engelo Rumora, a.k.a."the Real Estate Dingo," quit school at the age of 14 and played professional soccer at the age of 18. From there, he began to invest in real estate. He now owns real estate al...
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    Lauren Webb Real Estate Agent
    Replied almost 2 years ago
    Love this! I’ve always subscribed to this methodology (mostly just because I am a worrier!), and it’s saved my current deal from turning into a complete money pit when things went wrong unexpectedly.
    Engelo Rumora Specialist from Toledo, OH
    Replied almost 2 years ago
    Thanks for your comment Lauren, I’m glad that you found the content useful. Have a great day
    Tomer Versano Investor
    Replied almost 2 years ago
    Thanks for the great tip!
    Engelo Rumora Specialist from Toledo, OH
    Replied almost 2 years ago
    No worries, Thank you
    Terrell Murray from DelMarVa
    Replied almost 2 years ago
    Never thought of it this way but I like this concept, something I will keep in the back of my mind the next time I analyze a deal.
    Engelo Rumora Specialist from Toledo, OH
    Replied almost 2 years ago
    Thanks Terrell, I wish you much success
    Esete Berhane
    Replied almost 2 years ago
    I’m new to investing and BP, this was very helpful. Thank you for putting this together.
    Engelo Rumora Specialist from Toledo, OH
    Replied almost 2 years ago
    Thanks for your comment Esete, I’m glad that you found my content useful. I wish you much success
    Zachary Wiederstein Rental Property Investor from Las Vegas, NV
    Replied almost 2 years ago
    This is exactly the information I needed today. Thank you so much. I am very much looking forward to your next article.
    Engelo Rumora Specialist from Toledo, OH
    Replied almost 2 years ago
    No worries at all Zachary and thanks for your kind words. Keep the dream alive mate 🙂