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!
- 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.
- 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.
- 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.
- 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.
- 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.
- 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?