The Do & Don’ts for the First Time Real Estate Investor
The first time real estate investor can enjoy many benefits when investing in real estate, such as extra monthly income, not being tied down to a 9-5 job, financial security and freedom, long-term capital appreciation…however, if not done correctly, an investor can quickly get it wrong and be upside down on a deal which can have high financial costs.
As you debate whether you would like to move forward in investing in real estate, keep these tips in the back of your mind.
Do: The First Time Real Estate Investor should use diversification in real estate. Just like the stock market, you need to diversify. Wholesaling, Rehabbing, and Passive Income producing properties should all be in your portfolio. You want to make sure you diversify your asset holding and income. Doing this will help you prevent financial situations if one avenue of revenue dries up. Consider different locations and different types of properties.
Don’t: Do not over-concentrate in one type of asset class. Many people starting out will focus on one income strategy, one market, even one type of property. This can present a huge problem. The real estate market can be volatile and markets are out of our control. A major business can move in, or out of a city, causing fluctuations in the job and real estate market. Don’t shy away from that commercial or development deal just because you have no experience or you think the project is too big. If the numbers are there and they work, then move ahead even if you have to joint venture or partner on the deal.
Do: The First Time Real Estate Investor should consider cash flow properties as soon as they have funds to allocate. Passive Income is one of the best things to have to help you reach financial freedom. Placing multiple cash flowing properties in a retirement portfolio is a smart way to plan for retirement. Unfortunately, these properties do not come cheap. You must make sure that you have reserves for unexpected repairs, problem tenants, possible evictions, or prolonged vacancies. If you have you JIC fund in place, then start buying up rentals because the more passive income properties you obtain, the quicker you’ll reach your financial goals.
Don’t: Do not rush decisions and make sure to do your due diligence on all deals. A First Time Real Estate Investor may be so excited to get their first deal going, that they may forget to double check their numbers and do their due diligence in researching all the facts about a property. First off, the numbers have to work. You have decided to join this industry to make money. You need to know all the information about the property, like possible repairs that need to be made, liens on the property, who is on title, what is your exit strategy, important aspects like that. If you do your research before you sign the papers, you’ll be able to save yourself headaches and unexpected fees later.