6 Tips Beginners Must Know Before Investing in Real Estate

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After many deals, there is much I have learned but still many tips I wish I was given before investing.  In reality, I likely did come across these tips but they are often only internalized after experiencing the ramifications of them hands on.  Here are 6 tips beginner real estate investors should know about; make sure these stick! 

  1. Have a plan – Most beginners get so excited over the possibilities of real estate that they jump into any deal no matter what the numbers, risk, and exit strategies are, and do whatever they can to make it work.  This can result in disaster! Not having a plan is planning to fail.  Choose one strategy and focus on nothing but that.  Document that strategy in a business plan and you will significantly increase your chance of success. 
  2. Don’t close on your first deal until you have 5 deals to cherry pick from – Your first deal is the most important, doing this will help in countless ways.  Finding deals where the numbers make sense is one of the most important processes in real estate investing.  Do not fall in love with your first deal, become a master at finding deals where the numbers make sense and cherry pick from the best ones.  You will avoid the excitement and mistake of doing too many deals too fast especially too many bad deals.  Only do home run deals and grow your business at a nice, manageable pace.  If you master finding deals, you will have tons of worthy prospects to cherry pick from and profit from in different ways.
  3. Always have multiple exits – Make sure you are at a max of 70% LTV and your property cash flows.  Do not get stuck with one exit strategy that could fail due to things beyond your control.  Be prepared for the worst case scenarios and you will mitigate a lot of risk. 
  4. Don’t be a follower and do what everyone else is doing – Do your own thorough due diligence so you are making an informed business decision instead of making a decision because everyone else is doing something.  If everyone is doing it, it is probably too late, too saturated and too risky.  The best deals have no competition.
  5. Stay away from hot, over hyped, over competitive markets – Have you ever heard of buy low sell high?  In hot markets you often times missed the boat and are buying high.  You should target markets and deals where you can buy low and add value.  Get great LTVs and extremely high rent to purchase ratios.  Then any appreciation is gravy.
  6. Generate private money and reserves – Banks are not the only way to finance deals.  Private money opens up tons of opportunities and is the best way to fund deals in today’s market.  Cash is King!  Having reserves is also mandatory as there are always surprises.

What warnings and tips would have helped you?

Photo: love?janine

About Author

Ryan is the founder of Real Return Real Estate™ , a company focused on buying property at extreme discounts, selling and renting with cash flow.

7 Comments

  1. Very sound advice. I will forward this to some of my clients looking to invest for the first time. One other thing for first time investors to consider is that on occassion they may get a lemon for a tenant. So they should be very conservative in their number so that they aren’t strapped when dealing with a deadbeat tenant.

  2. Bob,

    Great advice indeed ! That first deal is so important as it provides the foundation of learning and the thirst for more. If one makes too many mistakes, that could leave the bad taste and not allow progress to grow or even worse give up before the game has a chance to start !

  3. Thanks Bob, Josh and Chris. I totally agree. The first deal you should be extremely conservative and be prepared for everything. There are a lot of things out of your control but there are some things you can do to reduce the negative effect of unpleasant surprises such as screening tenants, good property managers, tons of equity and cashflow, reserves, etc. The first deal has to be a home run.

  4. Exit strategy is everything!

    I always tell people, “It ain’t buying real estate that’s tough. It’s dealing with it after you have purchased it.”

    I should know. I have made some terrible deals in my time!

  5. Number 6 has made me a lot of money. I was reading in a previous blog that the US dollar has declined in value. That is not something for a real estate investor to get worked up about. Look for the opportunity instead. Use tip #6 and go out and find foreign investors. You will be surprised with how many investors you will find. It will also allow you to do more deals.

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