12 Tips for Investing Success

Real estate is a vehicle that I believe provides the best opportunity for the average American to pursue their dreams and live the life they were meant to live. It's not always what its cracked up to be on HGTV, but if you follow the basics of investing, I can assure you that you will find success over time.

There is no specific time table that you can follow to ensure that you will have X amount net worth by Y year, but I can guarantee one thing - time on task over time (consistency) will yield results that Donald Trump would call YUUUUUUUUUGE. Lets not waste anymore of your time and dive right in.

1. Profit Is Made on the Purchase - ever hear the phrase "you make your money when you buy"? Well it serves true with real estate. It may seem too simple, but if you don't find a property that is under market value, then you could be in big trouble. Now don't get me wrong, there are other creative ways to get a deal done (even when paying OVER market value) but for the purpose of this article I want to start SIMPLE. As you grow over time in your investing, you will get creative and be able to put deals together that a newbie would only dream of. I also like to look for properties that I can improve (kitchen, bathrooms etc) the existing structure, or find something that I can add additional value (like adding an extra bedroom, or bathroom).
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3. Buy Multi-Unit > Single Family - This tip will be heavily dependent on the strategy you choose. Obviously for the SFR (single family residence) flipper, this won't make sense, but we are assuming you are an investor that is looking for long term cash flow and appreciation. Even though a multi-family property is bigger and can be more expensive, they are actually easier to purchase and they can be less risky. Not too mention that there are multiple doors under one roof, so the cash flow potential is (insert Donald Trump voice) YUUUUUUGE. If you have a single family house and the tenant moves out, you just lost 100% of your cashflow. On the other hand, if you have 4, 8, or more under one roof, your loss is much less impactful.
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5. Be Strategic, Not Emotional - As a retail real estate agent I have see a family purchase a house because they "fall in love with the home", and that makes sense for that scenario, but as I put on my investor hat I need to be sure to tell you to leave your emotions at the door. This is a numbers game and there is a very specific set of criteria that we have to focus on when purchasing a property. Everybody is going to have a different set of rules or criteria, but you need to do whats right for YOUR long term strategy. Take your time. It is always better to wait for the right deal, even if it takes 9 months, then to buy a bad deal and lose money every month.
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7. Location, Location, Location - If there has ever been a more overused phrase in real estate, this is it! One thing I will say is that clichés exist for a reason, and it serves true time and time again. Make sure you are familiar with the area (especially if you are investing out of state)
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9. Find Properties in Which You Can Build Sweat Equity - Sometimes this can be a great place to start when you are just getting into real estate investing. The term "house hacking" (coined by Brandon Turner of Bigger Pockets) is one that comes to mind. This is where you buy a house that you can live in while you fix it up and add value to it, or where you can add monetary value by renting out individual rooms. Either way you look at it, it is a good strategy to find a home or complex that has some things you can do to put a little TLC and get a high return on your time and investment.
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11. Execute A Smart Renovation Plan - If you plan to do this at scale it may be smart to figure out how to build a system out of your renovations. One thing you can consider is using the same paint color, cabinet style, flooring, etc. Have the main focus be on kitchens and bathrooms. These are where you are going to see your highest ROI. Not too mention maybe taking a sledge hammer to a wall you want to take down. Partly because it adds visual value to a property and partly because, lets be honest, you just have always want to smash a sledge hammer into a wall :) - You also never get a second chance at a first impression, so making sure you take care of the curb appeal of the home is important. Many buyers will make their decision within the first minute of getting out of their car if they want to buy your flip or not, and if you are keeping it as a rental and trying to do the BRRRR method, an appraiser is going to have a positive first impression if the outside is neat and tidy.
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13. Add Value to Rent Out Properties Faster - For a buy and hold strategy some things you can consider to rent your home out faster is being sure to include all kitchen appliances (this is common in our market in Green Bay), but maybe you add in a washer and dryer too. Or consider adding Wi-Fi and cable into the mix. Absorb the cost of these within your rent amount, of course, but the perceived value from the renter may be enough to tip the odds in your favor and get your house rented quicker
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15. Manage Your Property Wisely - Many investors have to start out managing their own properties. Its ok! There is nothing wrong with doing this, and sometimes it can teach you valuable lessons and give you a better idea of what to look for when the day comes that you are going to hire a property manager. Anyways, in the beginning be sure to screen properly. Unfortunately, there are some tenants out there that "know the system" and this isn't their first rodeo. Improper screening can lead to a nightmare, and that nightmare will haunt you for your investing career. I have seen it many times where one bad rental property has pushed someone from being a landlord and caused them to jump back into the world of "average" and give up on their pursuit of cash flow investing. For some great resources on this topic, check out the forums and book store.
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17. Have a "$h*T Hit The Fan" Fund - One major mistake that many new investors make is that they miscalculate their cash flow. Say they are getting $1,000 for rent, and their mortgage is only $400. Well typically they would say that they are cash flowing $600.... WRONG!!! I want you to consider keeping money out each month (I suggest about 20%) to set aside in a fund for when things go wrong. It is never a matter of if, but when. One thing I will tell you is that when things go wrong, and the money is already in the checking account, it makes the problem seem less cumbersome than it could have been
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19. Hold onto Your Cash - Like we said earlier, CASH IS KING. We want you to hold onto as much of it as possible. The more cash you have, the more you can leverage that cash into cash flow. Through the purchasing of assets, by turning your cash into a down payment. When you are looking at properties always opt for the lowest down payment option you can find, that still fits within your comfort zone of equity position in the property. One method I love to talk about is the Brrrr method (this is an article for another day). This allows you to essentially pull all your cash back out of a property which allows you to deploy it into another property that helps you build your nest egg. All while keeping at least a 20-25% equity position in your property.
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21. Don't Over-Leverage - One sure fire way to play with fire is to leverage 100% of your properties. Now while we just talked about keeping as much cash as possible in the tip above, holding a 100% leveraged position is never a great idea and is also a big reason 2008 happened. Buying in a "hot" market with 100% leverage does not leave you any space to execute an exit strategy. If you can focus at a bare minimum of a 15-20% discount, you build yourself a buffer in the event the market dips. Leverage is an amazing tool that can be used to grow your portfolio to a massive size, but with many tools, it must be used wisely. A glass of red wine a day is good for a person, but 3 bottles a night can cause a problem. Same goes for leverage.
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23. Understand Market Volatility and Exit Strategies - Always enter a transaction with at least 2, if not 3 or 4 potential exit strategies. If you have these strategies in place, I can bet that you will have little to know issues, but if you have zero exit strategies in place, I can almost guarantee that you are going to run into issues. Expect the unexpected. Keep in mind that markets can dictate which strategy is best to implement. For example, believe it or not, a down market can be a great fit for rentals because a lot of people get their credit dinged and cannot get financing but yet they can still afford to pay rent. I remember a story of a home that I bought that was a short sale and my intention was to renovate the home and make about $32,000 on the property. Without going into too much detail, we had a few hiccups with aligning our private funding and I was basically stuck with $40,000 into this property with no funds to renovate. Luckily I took my own advise from #1 in this article and I knew it was a great buy. I was able to turn the property around and list it as-is on the MLS and sold it for a profit of $10,668. (I will write an article about this soon)

Hopefully this is helpful for those of you that are thinking about getting into the real estate investing game. Or those that are already dabbling but not really finding any traction. It is also entirely possible to invest in real estate without having the headache of having to deal with any of this. That would be more of a private money lending play (which we have an article coming on that). Regardless I wish you all the best in your investing endeavors. Cash flow is king!