New investors, no matter where they’re starting out, have a massive learning curve if they want to be successful. It’s true—there’s a ton to know before you can really dive in. If you want to find success in real estate investment from the get-go without making a lot of costly mistakes, there’s a foundation that must be laid from the very beginning.
8 Fundamental Concepts for New Investors to Master in the Beginning
1. Relevant Laws & Regulations
Obviously, the number one thing you’ll want to be up on are the legalities of getting into real estate investment. There are plenty of things you’ll need to know, and variations depending on where you live and invest. There are laws and liabilities to consider, like fair housing and discrimination laws, plus tax laws (you wouldn’t want to run into trouble with Uncle Sam), and plenty of national and local legal considerations.
For any investor, it’s important to know these laws and keep up with how they change over the years. It may be wise to seek a legal and tax adviser just to be sure you’re absolutely sure on everything.
2. Due Diligence
Due diligence is absolutely key for every real estate investor! No investor should be investing willy-nilly without taking the time to investigate and properly vet your properties and take care of the details. Things like hiring a property inspector before purchasing a property (and not relying on the seller’s report) are integral to avoiding big mistakes and unexpected surprises. It also involves examining the numbers. Do they make sense? Does this property fit into the grand scheme of your portfolio and your investment goals?
3. Reading the Numbers
Speaking of numbers, it can be a little difficult to learn what numbers matter and what numbers don’t. What should you be paying attention to? How are you making these calculations? Obviously, your prime concern with your rental properties should be cash flow. That’s what you’re looking for. Beware of fudging the numbers to making them work for you—if you love a property or are too eager to make your first deal, that can be a temptation!
Let the numbers speak for themselves. If they don’t make sense, they won’t make sense. Move on.
4. The Value of Good Property Management
Some investors chose to bear the burden of property management themselves. Others decide that they can just pick the cheapest services available so that their monthly cash flow doesn’t suffer as much. Investors would do well to learn early on that good property management is worth the premium. A trusted, excellent property management team is one of your best assets and has an amazing return on investment.
5. Taxes
Taxes! We love to hate them. For the investor, it’s not just about not making tax mistakes, it’s about reaping the tax benefits. Your new found method of passive income is rife with benefits. It can be downright tax-free if you do it right, and that’s amazing! You can even look into things like investing through a SDIRA for retirement. Do some research and talk to a professional who really knows real estate investment finance and taxes.
6. What Makes a Good Tenant Good
The other key to a successful rental property is a good tenant. Being able to snag and retain a good tenant is going to keep your cash flow stable and incidents that cost you money low. Good tenants mean you don’t end up with property damage, you don’t deal with lawsuits, and you don’t have to wrestle with general bad tenant headaches.
Knowing what makes a good tenant (ie. how to properly vet a tenant and perform a background check, something a good property management team can help you with), can create stability for your investments for the future.
7. The Qualities of a Good Property
What to look for in an investment property? That’s the big question. Before you get going, you have to know what you’re looking for. The same thing that makes any real estate good makes an investment property good: location! Is the neighborhood up-and-coming? Going downhill? What are the property values like? Is the rental market saturated? In demand?
There are a ton of factors in the equation. On top of the that, there’s the property itself: what’s the value in comparison to the houses around it? Is the layout weird? Does it make sense for the renters in your area or who you will be marketing to?
8. Your Goals as a Real Estate Investor
While you can’t research, you have to do some introspection for this one. For real estate investors just starting out: you need your goals in mind! While there are a lot of things to figure out (and a lot of things that must be learned through experience), you do need to have a plan before you go in. Have in mind what kind of investor you want to be going in, or what type of investments you want to try. What are your long-term, ultimate goals? These will help keep you on track and focused as you learn.
One of the best ways to ease the learning curve as a new investor is to get involved in turnkey real estate investment, where you can learn on the expertise of your turnkey investment company.
