Since the housing crash of 2008, investing in real estate has made American millionaires lots of money. According to Morgan Stanley about 77 percent of millionaires have invested in some form of real estate, and it continues to top the investment list for the near future. Are you hoping to join them? Are you contemplating what their secret is?
Luckily, making money with real estate is no mystery. To help you become the next mogul, here are ten secrets of successful real estate investors.
1. Plan First
Diving into the real estate market without a plan isn’t exactly a brilliant maneuver. Before jumping in, set specific goals and objectives.
“First, you find the plan,” says Andy Heller, co-author of Buy Even Lower: The Regular People’s Guide to Real Estate Riches. “Then you find the house to fit the plan. Pick your investment model, and then go find property to match that. Don’t find the strategy after you find the home.”
2. Take Agreements Seriously
Star of HGTV’s Property Virgins and expert Real Estate Agent Sandra Rinomato knows her way around real estate contracts. “Contracts are very serious, including the Agreement of Purchase and Sale for a home.” warns Rinomato. “Contracts have very clear requirements including time, terms and consequence. You should make certain that you fully understand all of your obligations before you sign anything.”
3. Buyer Beware
Real estate agents have a code of their own. “Cozy”, “cute as a button” and “charming” usually mean the house is small. “Original owners” often means the property hasn’t been updated since the ‘60s, or worse. “Needs some TLC” or “handyman’s special” can be code for “needs a bulldozer”. Learn to read between the lines when looking through listings.
4. Pull Out Your Calculator
Scott McGillivray, real estate expert and TV host of Income Property says the key to success is in the numbers. Scott says: “When investing in a property you have to fall in love with the numbers, not the house. This is probably the number one mistake people make when investing in real estate.”
5. Cash Flow is King
To succeed in real estate, your property needs to pay you, not the other way around. Rental income needs to cover all of your expenses, not just mortgage payments. Focus on properties that give you positive cash flow even after estimating generously for vacancies, maintenance, taxes, insurance and management fees – even if those fees are paid to yourself. Don’t gamble solely on appreciation; there’s no guarantee the market will keep going up.
6. Use an Ironclad Lease Agreement
A hand-shake to seal the deal with a tenant is great, but does little to protect you. Having a comprehensive, state-specific lease agreement is an absolute must. A strong lease agreement shields the landlord and/or manager with protective legal clauses, and outlines in writing all of the tenants’ and landlord’s responsibilities, as well as details about security deposits, rent and repairs. Having your terms in writing can help protect you from liability in the event of a dispute with a tenant.
7. Treat Your Real Estate Investments as a Business
How much money would your business make if you ignored it? To be a successful real estate investor, you need to work at it. Be an active landlord and know what’s going on with your rental properties. Stay on top of maintenance and repairs. Keep good records. Don’t cut corners – always follow the rules, from federal laws to local regulations. By treating your real estate as a business, you’re also more likely to make good decisions based on numbers and facts, not emotions.
8. Be Ready for a Long-Term Commitment
Don’t be misled by the get-rich-quick infomercials. Real estate is usually a long-term investment given its illiquidity. It takes hard work, time and effort. You won’t get rich overnight, but when done right, real estate offers good return on investment. As the years go by, tenants pay off your mortgage and hopefully your property appreciates in value.
Unless your specialty is flipping homes, buy-and-hold is the way to go.
9. Keep Learning
Successful real estate investors know there’s always something to learn. Most have spent endless hours poring over market research, listings, or anything else they can get their hands on. Once they own properties, on-the-job learning comes with the territory, as owners are faced with new situations and challenges regularly.
Luckily many have been there, done that, so there is plenty of information readily available. Check out blogs, news articles and books to stay current on the subject. You don’t have to do it alone. Join a landlord association or investment club to learn from others in your area.
10. Get Out There!
You won’t make any money in real estate if you don’t get out there and start. Do your research. Meet Realtors and landlords. Walk through properties. Make offers, even low ones. A real estate empire isn’t built in a day – it can take months to find the right property at the right price. But you’ll never find it if you don’t start researching homes and walking through potential investments, so jump in!