I came up with the following rules of successful real estate investing over my years of successes and failures. These are the same rules I follow today and share with our clients at Norada Real Estate Investments.
1. Educate Yourself
Data is the new currency. Without it you are doomed to follow other people?s advice without knowing if it?s bad. Information will also help take you from being a ?good? Financier to becoming a great financier, and that data will help give a passive stream of earnings for you or your family.
2. Set Investment Goals
A goal is different from a wish; you may want to be rich, but that doesn?t mean you?ve ever taken steps to make your wish come true.
Setting clear and specific investment goals becomes your map and action plan to becoming independent in a money sense. You are statistically far more certain to achieve financial independence by writing down precise and detailed goals than not doing anything whatsoever.
Your ambitions can include the quantity of properties you need to acquire each year, the once a year cash-flow they generate, the kind 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 quick short-term gains in appreciation, even in a heated market experiencing double-digit gains. You never can say when a market will peak and it?s often 6 to 9 months later when you discover. Don?t chase after appreciation. Only invest in shrewd value plays where the numbers make sense from the beginning.
4. Invest for Cashflow
With few rare exceptions, always buy investment property with a positive cash-flow. The higher, the better. Your cash-on-cash return is related directly to the before-tax cash-flow from your property.
Cash-flow is the ?glue? That keeps your investment together. Your equity will grow in 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 United States is a particularly enormous country made up of hundreds of local real estate markets. Each market goes up and down independently of each other due to many local factors. As such, you must recognise that there are occasions when it makes sense to invest in a selected market, and instances when it does not. Only invest in markets when it makes sense to do so , not because you live there or you bought property there before. There?s an element of timing and you don?t need to beat the trend.
6. Take a Top-Down Approach
Always begin by selecting the best markets that align with your investment goals. Most speculators start by investigating properties with little or no regard of its location. This may be a bad error if you don?t consider the investment given the market and neighborhood it?s in.
The best path is to first choose your city or city primarily based on the health of its housing market and local economy (unemployment, job expansion, population expansion, and so on.). From there you would narrow things down to the best districts (comforts, schools, crime, renter demand, etc.). Eventually, you would search for the best deals within those areas.
7. Diversify Across Markets
Focus on one market at a time, amassing 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 provident market that is geographically different than the previous one. Sometimes that means targeting another state.
One of the fundamental reasons for diversification in the same asset class (real estate), is to have your assets spread all over different industrial centres. Every home market is ?local? And each housing market moves independently from one another. Diversifying across multiple states helps reduce your ?risk? Should one market decline for any valid reason (increased unemployment, increased taxes, for example.).
8. Use Expert Property Management
Never manage your own properties unless you run your own management firm. Property management is a thankless job that requires a solid appreciation of tenant-landlord laws, good selling abilities, and robust social skills to deal with renter beefs and excuses. Your time has value and may be spent on your family, your career, and searching for more property.
9. Keep Control
Be a direct investor in property. Never own property through funds, partnerships, or other paper-based investments where you own shares or other securities of an entity you don?t control. You always want to be in control of your real estate investments. Don?t leave it to corporations. Or fund executives.
10. Leverage Your Investing Capital
Real-estate is the only investment where you can borrow other people?s money (OPM) to buy and control income-producing property. This permits you to leverage your investment capital into more property than purchasing using ?all cash? Leverage magnifies your general rate-of-return and accelerates your money creation.
So long as you have positive cash flow and your renters are clearing your home loan for you, it'd be silly not to borrow as much as possible to buy more income property.
1. Educate Yourself
Data is the new currency. Without it you are doomed to follow other people?s advice without knowing if it?s bad. Information will also help take you from being a ?good? Financier to becoming a great financier, and that data will help give a passive stream of earnings for you or your family.
2. Set Investment Goals
A goal is different from a wish; you may want to be rich, but that doesn?t mean you?ve ever taken steps to make your wish come true.
Setting clear and specific investment goals becomes your map and action plan to becoming independent in a money sense. You are statistically far more certain to achieve financial independence by writing down precise and detailed goals than not doing anything whatsoever.
Your ambitions can include the quantity of properties you need to acquire each year, the once a year cash-flow they generate, the kind 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 quick short-term gains in appreciation, even in a heated market experiencing double-digit gains. You never can say when a market will peak and it?s often 6 to 9 months later when you discover. Don?t chase after appreciation. Only invest in shrewd value plays where the numbers make sense from the beginning.
4. Invest for Cashflow
With few rare exceptions, always buy investment property with a positive cash-flow. The higher, the better. Your cash-on-cash return is related directly to the before-tax cash-flow from your property.
Cash-flow is the ?glue? That keeps your investment together. Your equity will grow in 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 United States is a particularly enormous country made up of hundreds of local real estate markets. Each market goes up and down independently of each other due to many local factors. As such, you must recognise that there are occasions when it makes sense to invest in a selected market, and instances when it does not. Only invest in markets when it makes sense to do so , not because you live there or you bought property there before. There?s an element of timing and you don?t need to beat the trend.
6. Take a Top-Down Approach
Always begin by selecting the best markets that align with your investment goals. Most speculators start by investigating properties with little or no regard of its location. This may be a bad error if you don?t consider the investment given the market and neighborhood it?s in.
The best path is to first choose your city or city primarily based on the health of its housing market and local economy (unemployment, job expansion, population expansion, and so on.). From there you would narrow things down to the best districts (comforts, schools, crime, renter demand, etc.). Eventually, you would search for the best deals within those areas.
7. Diversify Across Markets
Focus on one market at a time, amassing 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 provident market that is geographically different than the previous one. Sometimes that means targeting another state.
One of the fundamental reasons for diversification in the same asset class (real estate), is to have your assets spread all over different industrial centres. Every home market is ?local? And each housing market moves independently from one another. Diversifying across multiple states helps reduce your ?risk? Should one market decline for any valid reason (increased unemployment, increased taxes, for example.).
8. Use Expert Property Management
Never manage your own properties unless you run your own management firm. Property management is a thankless job that requires a solid appreciation of tenant-landlord laws, good selling abilities, and robust social skills to deal with renter beefs and excuses. Your time has value and may be spent on your family, your career, and searching for more property.
9. Keep Control
Be a direct investor in property. Never own property through funds, partnerships, or other paper-based investments where you own shares or other securities of an entity you don?t control. You always want to be in control of your real estate investments. Don?t leave it to corporations. Or fund executives.
10. Leverage Your Investing Capital
Real-estate is the only investment where you can borrow other people?s money (OPM) to buy and control income-producing property. This permits you to leverage your investment capital into more property than purchasing using ?all cash? Leverage magnifies your general rate-of-return and accelerates your money creation.
So long as you have positive cash flow and your renters are clearing your home loan for you, it'd be silly not to borrow as much as possible 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 growth markets around the U. S.. "10 Rules of Successful Real Estate Investing" was originally published on the Real Estate Investing Blog.
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