I invented the following rules of successful real estate investing over my numerous years of successes and screw ups. These are the same rules I follow today and share with our clients at Norada Real Estate Investments.
1. Educate Yourself
Information is the new currency. Without it you are cursed to follow other people?s information without knowing if it?s bad or good. Data will also help take you from being a ?good? Financier to turning into a great financier, and that data will help give a passive stream of earnings for you or your folks.
2. Set Investment Goals
A goal isn't the same as a wish; you may want to be rich, but that doesn?t mean you?ve ever taken steps to make your wish become true.
Setting clear and precise investment goals becomes your roadmap and plan to becoming financially independent. You are statistically far more likely to achieve financial independence by writing down specific and detailed goals than not doing anything whatsoever.
Your goals can include the amount of properties you want to acquire each year, the annual cash-flow they generate, the type of property, and the site of each. You might also want to set parameters on the rates of return needed.
3. Never Speculate
Always invest with a long-term viewpoint under consideration. Never speculate on fast short-term gains in appreciation, even in a heated market experiencing double-digit gains. You never can tell when a market will peak and it?s often 6 to 9 months later when you find. Don?t chase after appreciation. Only invest in shrewd value plays where the numbers make sense from the start.
4. Invest for Cash flow
With few rare exceptions, always buy investment property with a positive cash-flow. The higher, the better. Your cash-on-cash return is related to the before-tax cash-flow from your property.
Cashflow is the ?glue? That keeps your investment together. Your equity will grow over a period of time (through appreciation and loan amortization), while the cash-flow covers the operating expenses and debt service on your property.
5. Be Market Agnostic
The U. S. is a really enormous country made from loads of local real-estate markets. Each market goes up and down independently of one another due to many local factors. As such, you need to recognise that there are times when it makes sense to take a position in a particular market, and instances when it does not. Only invest in markets when it is sensible to do so , not as you live there or you bought property there before. There?s an element of timing and you don?t desire to go against the trend.
6. Take a Top-Down Approach
Always start by choosing the best markets that align with your investment goals. Most investors start by analyzing properties with little to no regard of its location. This is a major mistake if you don?t consider the investment in light of the market and neighborhood it?s in.
The best way is to first select your town or town based primarily on the healthiness of its housing market and local economy (unemployment, job expansion, population growth, etc.). From there you would narrow things down to the best districts (conveniences, faculties, crime, renter demand, for example.). Ultimately, you would go looking for the most acceptable deals inside those neighborhoods.
7. Diversify Across Markets
Focus upon one market at a time, accumulating from 3 to 5 income properties per market. Once you?ve added those 3 to 5 properties to your portfolio, you would diversify into another prudent market that's geographically different than the previous one. Usually that implies concentrating on another state.
One of the fundamental reasons for diversification within the same asset class (real estate), is to have your assets spread all over different business centers. Every real estate market is ?local? And each housing market moves independently from one another. Widening across multiple states helps reduce your ?risk? Should one market decline for any valid reason (increased unemployment, increased taxes, etc.).
8. Use Professional Property Management
Never manage your own properties unless you run your own management company. Property management is a thankless job that needs a solid understanding of tenant-landlord laws, good promoting talents, and powerful social skills to cope with tenant grumbles and excuses. Your time costs and will be spent on your folks, your career, and looking for more property.
9. Keep Control
Be a direct financier in property. Never own property through funds, partnerships, or other paper-based investments where you own shares or other stocks of an entity you don?t control. You wish to be in control of your real estate investments. Don?t leave it to companies. Or fund executives.
10. Leverage Your Investing Funds
Real estate is the only investment where you can borrow other people?s money (OPM) to purchase and control income-producing property. This lets you leverage your investment funds into more property than purchasing using ?all cash? Leverage magnifies your general rate-of-return and accelerates your wealth creation.
So long as you have positive cash-flow and your tenants are paying down your home loan for you, it might be silly not to borrow as much as practicable to buy more income property.
1. Educate Yourself
Information is the new currency. Without it you are cursed to follow other people?s information without knowing if it?s bad or good. Data will also help take you from being a ?good? Financier to turning into a great financier, and that data will help give a passive stream of earnings for you or your folks.
2. Set Investment Goals
A goal isn't the same as a wish; you may want to be rich, but that doesn?t mean you?ve ever taken steps to make your wish become true.
Setting clear and precise investment goals becomes your roadmap and plan to becoming financially independent. You are statistically far more likely to achieve financial independence by writing down specific and detailed goals than not doing anything whatsoever.
Your goals can include the amount of properties you want to acquire each year, the annual cash-flow they generate, the type of property, and the site of each. You might also want to set parameters on the rates of return needed.
3. Never Speculate
Always invest with a long-term viewpoint under consideration. Never speculate on fast short-term gains in appreciation, even in a heated market experiencing double-digit gains. You never can tell when a market will peak and it?s often 6 to 9 months later when you find. Don?t chase after appreciation. Only invest in shrewd value plays where the numbers make sense from the start.
4. Invest for Cash flow
With few rare exceptions, always buy investment property with a positive cash-flow. The higher, the better. Your cash-on-cash return is related to the before-tax cash-flow from your property.
Cashflow is the ?glue? That keeps your investment together. Your equity will grow over a period of time (through appreciation and loan amortization), while the cash-flow covers the operating expenses and debt service on your property.
5. Be Market Agnostic
The U. S. is a really enormous country made from loads of local real-estate markets. Each market goes up and down independently of one another due to many local factors. As such, you need to recognise that there are times when it makes sense to take a position in a particular market, and instances when it does not. Only invest in markets when it is sensible to do so , not as you live there or you bought property there before. There?s an element of timing and you don?t desire to go against the trend.
6. Take a Top-Down Approach
Always start by choosing the best markets that align with your investment goals. Most investors start by analyzing properties with little to no regard of its location. This is a major mistake if you don?t consider the investment in light of the market and neighborhood it?s in.
The best way is to first select your town or town based primarily on the healthiness of its housing market and local economy (unemployment, job expansion, population growth, etc.). From there you would narrow things down to the best districts (conveniences, faculties, crime, renter demand, for example.). Ultimately, you would go looking for the most acceptable deals inside those neighborhoods.
7. Diversify Across Markets
Focus upon one market at a time, accumulating from 3 to 5 income properties per market. Once you?ve added those 3 to 5 properties to your portfolio, you would diversify into another prudent market that's geographically different than the previous one. Usually that implies concentrating on another state.
One of the fundamental reasons for diversification within the same asset class (real estate), is to have your assets spread all over different business centers. Every real estate market is ?local? And each housing market moves independently from one another. Widening across multiple states helps reduce your ?risk? Should one market decline for any valid reason (increased unemployment, increased taxes, etc.).
8. Use Professional Property Management
Never manage your own properties unless you run your own management company. Property management is a thankless job that needs a solid understanding of tenant-landlord laws, good promoting talents, and powerful social skills to cope with tenant grumbles and excuses. Your time costs and will be spent on your folks, your career, and looking for more property.
9. Keep Control
Be a direct financier in property. Never own property through funds, partnerships, or other paper-based investments where you own shares or other stocks of an entity you don?t control. You wish to be in control of your real estate investments. Don?t leave it to companies. Or fund executives.
10. Leverage Your Investing Funds
Real estate is the only investment where you can borrow other people?s money (OPM) to purchase and control income-producing property. This lets you leverage your investment funds into more property than purchasing using ?all cash? Leverage magnifies your general rate-of-return and accelerates your wealth creation.
So long as you have positive cash-flow and your tenants are paying down your home loan for you, it might be silly not to borrow as much as practicable to buy more income property.
About the Author:
Marco Santarelli is an investor, author and founder of Norada Real Estate Investments -- a nationwide real estate investment firm providing turnkey investment property in emerging markets around the U. S.. "10 Rules of Successful Real Estate Investing" was originally published on our Real Estate Investing Blog.