My Top 4 Business Tips for the New Real Estate Investor

There is a lot to learn when you enter the real estate game. More importantly, there are many things that nobody bothers to tell you.

Here are four of the most essential tips for the new real estate investor. I hope they save you some headaches and help you set yourself up for success in the real estate game.

1. Overestimate starting investment costs.

The idea that entering real estate with no capital is easy is perpetrated in many places online. The reality is, having enough capital to sustain your business through unexpected startup costs is always a wise move.

2. Personal investment loans will serve you better than commercial investment loans.

Personal loans tend to have far better terms than commercial loans. The same investor can walk into one bank for a personal loan and receive much more favorable terms than if they had walked into a bank and requested a commercial loan–or even mentioned using an LLC to manage real estate assets.

Once your transaction is complete, we recommend transferring the property into an asset protection structure. These types of transfers can be executed using land trusts to avoid triggering the due-on-sale clause found in most loans.

3. Have realistic expectations about “passive” investing.

Some investors may be experienced in other asset classes, but new to real estate. If this describes you, understand that while the goal of real estate is passive income, it is not an effortless endeavor. You will either be pounding the pavement, securing a mortgage, sourcing tenants, or managing the property.

Unless, of course, you choose to outsource these tasks to professionals, who naturally will need to be paid. While it’s great to have professionals on board, the cost of outsourcing property management can eat up to 10% of your income from the property.

Don’t get us wrong, real estate is absolutely a rewarding and worthwhile type of investment. We are simply suggesting that you have realistic expectations about real estate investing and what “passive” income actually means.

4. Defend your assets from lawsuits.

Your asset protection strategy is an investment to figure into your overall budget. If you have spent time and effort building a business, it makes sense to spend a relatively small amount of money to defend those assets from potential lawsuits.

Remember, real estate investors mainly lose money in two ways: bad deals and lawsuits. Nobody can guarantee you won’t encounter a bad deal, but an effective asset protection plan can help prevent you from seeing the inside of a courtroom. Don’t skimp on asset protection, as it may be the component of your investing strategy that saves your backside if you are ever threatened with a lawsuit.

What advice would you give to new investors?

Share your wisdom in the comments.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.