Let’s cut to the chase: when you want to succeed as a real estate investor, there are just some things you’ve got to do. You’ll come across lots of tips and tricks for making your rental properties work, but we’ve got the absolute essentials.
Set yourself up for success by following these tried-and-true investing tips:
10 Tips for Success in Real Estate Investing
Tip #1) Prioritize business relationships.
Successful investing isn’t all about smart money moves. This industry is surprisingly people-focused, and that means you must be that way, too. Prioritize building trusting relationships with your advisors, management team, residents, and vendors. Whoever you come in contact with, no matter how active or passive you are, you must safeguard your reputation and bolster it through honest dealings, transparency, and fairness.
Tip #2) Don’t overleverage!
Growing your real estate portfolio is essential for building real wealth. That said, timing is important – you don’t want to overleverage! This happens when you push your debt-to-income ratio too high, which can prevent future property acquisitions. The more debt you take on, the less wiggle room you have in your financial circumstances. Be sure you have the savings and cash flow to handle not only the increased debt but unexpected and ongoing costs.
Tip #3) Target single-family rentals.
There are dozens of combinations of types of real estate and strategies to employ. Whether you’re investing in the latest trend of tried-and-true standbys, you’ve got to set a solid foundation for your portfolio. Historically and presently, that solid foundation is built on single-family rentals. Demand for SFRs is higher than ever and, in face of the housing crisis, it’s only going to grow. While there are risks in the SFR world, it’s very unlikely they’ll leave you high and dry when done right.
Tip #4) Diversify your portfolio.
Portfolio diversification mitigates risk. Diversification happens first and foremost by simply acquiring more assets. Owning multiple rental properties not only increases your streams of cash flow, but it bolsters your net worth. You can also diversify by location. This allows you to take advantage of a variety of economic conditions while protecting your assets from unforeseen circumstances, such as a natural disaster, in one market.
Tip #5) Choose your markets wisely.
A great property in a bad place is a bad investment. If the market is wrong, you’ll fight an uphill battle to make your investments work. Market impacts demand, rent costs, property values, inventory, and more. The best thing you can do is target markets that display long-term predictability and reliability. You want markets that are economically sound with a robust job market, growing household income, and trends of population growth. These will ensure that your properties stay in high demand!
Tip #6) Prevention is the best cure.
No investor likes having to shell out the cash for a major repair or replacement. Just know this: when it comes to your investments, anything worth doing is worth doing right. Hire the people who will do the best job and use the materials, fixes, and features that are built to last. It might be more expensive, but you’ll save on a slew of temporary quick fixes and frustrations. In the same way, you want managers who will pay close attention to your property and ensure that problems are nipped in the bud before they get out of hand.
Tip #7) Retain your best residents.
Resident retention is where investors can really win. The more you can reduce turnover and decrease vacancy rates, the better your margins are going to look. It saves time, hassle, and most importantly – money – to secure great residents that want to renew their lease again and again.
Tip #8) Budget for investing.
Just as you would make a budget and a financial plan for your family or business, investing in real estate demands budgeting. Be sure you’ve gone over and regularly revisit your finances. You want a solid safety net, full knowledge of ongoing expenses, and a plan to acquire future assets.
Tip #9) Maximize tax benefits.
Next to cash flow and property equity, tax advantages are one of the big benefits of investing in buy-and-hold real estate. But you can only reap those benefits if you – or more likely, your CPA – knows what you’re doing. Hire professionals with experience dealing with investors and be sure you know your various tax strategies and options, like the 1031 Exchange.
Tip #10) Invest in quality services.
Some real estate investors approach their strategy with the notion that success is found in reducing costs as much as possible. But as they say, you’ve got to spend money to make money – and that’s certainly true of real estate! Investors, choose quality. Quality often comes at a premium, but it’s well-worth the consistency, quality, and peace of mind. Spend what it takes to know that your properties are being managed right.
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