10 Tips to Successful Real Estate Investing

[sarasika]

1. Compare Property Values and Rents

Financial statistics only go so far; the best measure of a property's market value is often the sale prices of nearby properties. The same holds true for area rents. A low price can often be justified by a reasonable rent; renters who can afford a high rent can afford to buy instead, so reasonably priced rent is a need.

2. Be careful - Tax laws may change

Don't base your tax investment on current tax laws. The tax code is constantly changing, and a good investment is a good investment regardless of the tax code. The right property with the right financing is what you should look for as an investor.

3. Specialize in something you Know

Start in a market segment you know. Whether you focus on fixer-uppers, foreclosures, starter homes, low-down payment properties, condominiums, or small apartment buildings, you'll benefit from experience by specializing in one aspect of investment real estate properties.

4. Know the Costs going in!

Know the financial statements inside out. What are operating expenses? What are loan payments? Vacancy costs? Taxes? What does the cash flow statement look like? These are key issues that must be addressed before making a solid investment.

5. Know where your tenants are coming from

If the last rent increase was recent, your tenants may be considering a move. If tenants have a short-term lease, they may be living there simply to attract unsuspecting buyers. It is also important to collect the tenants' security deposits at closing.

6. Assess the tax situation

Taxes are an integral part of successful real estate investing, and they often make the difference between a positive cash flow and a negative one. Know the tax situation, and see how it can be manipulated to your advantage. It may be a good idea to consult a tax advisor.

7. Investigate insurance coverage

If seller's coverage is based on lower-than-current replacement value, your insurance cost may increase when you pay a higher purchase price.

8. Confirm Utility Costs

Ask the local utilities to verify recent utility expenses, especially if any of these costs are included in your tenant's rent.

9. Consult Your Accountant

Taxation is a key element of successful real estate investing, so be sure to find an accountant who is well-versed with the constantly evolving tax code.

10. Inspect!

Make sure that you always perform a thorough inspection of the property before buying it. Never, ever buy any property without at least examining the site. In some cases, hiring professional inspectors to examine the structural mechanical system may be a sound investment.

[davewindsor]

I would add an 11th point, which tends to often get missed when evaluating a property that on face of it may not look that much of a winner.

11) Is there hidden value in the property that can be unlocked? 

Are the tenants paying for parking?  Can you convert the garages into something else?  Is this a good candidate for a condo conversion, as condos have lower mill rates than apartment buildings?  You can also resell the condos for a lot more individually than as a package apartment building.  Can you put a billboard on a high traffic side and rent it out?  Can you add vending machines to the laundry room?  Can you sell off any extra land or building something else on it?  Could a storage room be converted or split up into a bachelor apartment(s)?  Could you break up a three bedroom apartment into two one bedrooms or rent out the three bedrooms individually like in the case of a three bedroom apartment in an area close to a university for student housing?  Are there government grants available to do such a conversion?  Are there government grants available that once applied would allow you to lower some of your expenses?  Will tiling an apartment lower the maintenance costs so you don't have to buy new carpet every time someone moves out. 

There's a whole list of hidden value items that I can go on and on about and you should think creatively about that could create wealth for you or raise the values of your reappraisals.

David
Realtor, Landlord & Investor

[ReCoachDennis]

I Love it!

Great Article.

DaveW- awesome 11th point. I love the way you stretch that profit margin man. Good stuff.

I would also add that although the original post focuses mainly on actually purchasing the home and then flipping it or keeping it as part of your portfolio, with all the new investors reading these posts, I would also recommend options and wholesaling to get started.

By simply locating deals, locking them up and flipping/assigning the option/contract- you can actually earn while your learn.

Sure it's not the lion's share of the profits, but guess what? YOu're not taking on the Lion's share of the risk as well.

During this stage you'll find out quickly what a deal looks like and you'll work out a lot of the kinks BEfore you start investing larger amounts of your own money/credit.


Good stuff guys!

Dennis

[ShortSaleArtisan]

Sarasika - Nice post!

I would add in a generic, "Be professional"

I can't believe how many sloppy people I see out there in the world. In generic terms, "Dress for the job you want"

[jamesrk]

I might suggest for your item #4 "Know the costs" that you request the seller's Schedule E tax form for the past several years. This way you can see what the seller is telling the IRS about income and expenses.

[BillHernandez]

Very interesting article.  With the current real estate market the way it is many agents are looking for ways to improve their businesses.  I find that #3 may be the most beneficial tool.  If you are able to specialize in a market that lacks clarity you are able to then build a client base and credibility.

[L Rubijevsky]

Great article!  You lay out some extremely key points that many real estate agents tend to overlook.  Now only if we can get the market to start rising again and help investors gain credibility and begin to provide their money again.  Well written article that is going to help many agents find the key tools to boosting their careers!

[MichaelQuarles]

Can I add one?

12) Dont buy passive income when you can also(or) buy massive income... Even if you want to buy and hold...

Too many people want to become investors too bad and make quick decisions based upon an inexperienced agents guidance... Heck if I were going to buy and hold I would contact Moderator on this board  "PropertyManager" and argue with him for a few weeks or months before I did anything...

Just me

Michael

PS Nice post btw

[jlspartz]

12) Dont buy passive income when you can also(or) buy massive income... Even if you want to buy and hold...

Not sure if I fully understand this.  Do you mean why settle for holding the place and receiving a trickle of cash, compared to flipping it for a large amount now and possibly using a wrap for the passive income as well?

[furnishedowner]

I'll add another way of increasing cash flow on an income-producing property...

FURNISH it and triple the rent.  Or double it.  Research hotel prices and occupancy rates in your market to determine what your pricing should be. 

If you are near hospitals or universities there is a constant built-in demand for furnished extended stay rental units.  In most towns there is a demand for furnished rental units-- trainees, construction workers, temporary fill-in workers in all fields, vacationers, etc.

You can furnish a unit and have utilities on in a week.  If this market later changes, you sell that stuff or throw it into storage.

You can earn $1500/month rent instead of $500.  Even with utilities the profits can be significant if you keep that unit full.

Furnishedowner

[Frank Rizzi]

Interesting posts and ideas as to the ways to reach success.  I agree with a few of your main points but I also feel that each and every person can be successful through investing in multiple different ways.  Keep up the good posts hopefully people will take your advice to heart.