Thanks to television shows like Flip This House and Income Property, many people want to make income as a real estate investor. And why wouldn’t you? In just an hour (or less, if you don’t count commercials), you can watch people make tens of thousands of dollars by just picking out a property and sprucing it up.
Of course, we both know it’s not as easy as they make it seem on HGTV, but real estate investing can still be a pretty lucrative enterprise.
Not only can you make big gains from flipping houses or accrue a steady stream of income from renting out your properties, you’ll also benefit from tax breaks and reap the advantages of appreciation over time.
Of course, there’s more than one way to make money from real estate, and there are a few things you should know before you jump in.
If real estate sounds like an interesting potential investment, here are a couple of tips you can use to get started in the real estate game.
Learn from Successful Peers
If you’re brand new to investing in real estate, you might be eager to get started right away, but before you dive in, take some time to get to know your area and market a little better.
If you don’t have any friends locally who are successful real estate investors, that’s ok – you can find lots of groups who are always accepting new members. Look on Facebook, on meetup.com, or simply Google a term like, “Real Estate Investor Association” along with your city’s name and you’ll find lots of groups you can join in order to learn more.
In addition to the knowledge you’ll gain, there’s another benefit to getting started by joining a group, too.
Jim Rohn may have put it best when he said “You are the average of the five people you spend the most time with.” If you surround yourself with successful investors, you’ll naturally want to rise to be at their level.
This positive peer pressure makes it a whole lot easier to succeed than hanging out with naysayers ever will.
Look for Cash Flow
If you decide you want to become a landlord, look for properties where you’ll have cash flow.
This means you want a property where the rent the tenant pays you exceeds all your costs associated with owning the property.
Your cash flow on the property doesn’t have to be a lot – as I said, you’ll still get other benefits like tax breaks and appreciation even if your property only brings in a few hundred a month.
Once you find one of these positive cash flow properties, you’ll find it easier to add others to your portfolio, too.
Look for a Quick Flip
Another way to make money from real estate investing is the way they portray in all those aforementioned HGTV shows. You buy a property for a low price, fix it up a bit, and then sell it at a substantial increase.
This is different from investing for cash flow – it has bigger and faster potential rewards, but it has more substantial risks, too, so do your homework on how much risk you can afford to bear before you decided to go this route.
If you do decide to flip houses, get to know local contractors and vendors.
When you’ve built relationships with tradespeople, they can give you the inside scoop on what materials to use and how long jobs will realistically take.
This way, you won’t end up holding the bag if, say, the new flooring takes a lot longer to put in than you thought it would, or your contractor initially estimated, for example.
Go in with a Group
If you are looking for a more secure way to make passive income through real estate investing, going in with a group on multi-family housing might be a better method for you.
With an investment of just $50,000, you can usually get started with this strategy.
The reason this is a more secure method is because you’ll be investing with other people.
The potential for risk is shared, so this method is safer than some others. Obviously this shared risk comes with shared profits, and you have to be willing to work with the other members in your group.
So be aware that by limiting your risk, you also limit your potential earnings, and say in what happens with the property.
Invest in a REIT
You don’t have to stay with the world of residential real estate investing. You can also look for retail, healthcare, or office real estate, too.
The easiest way to get started in any of these areas is with a Real Estate Investment Trust, or REIT. REITs are different than the other types of real estate investing mentioned above because they’re typically traded on stock exchanges.
You’ll probably see smaller gains, but you’ll also have less long term risk because you’re not locked into a property.
If you just want to dip your toe into the waters of real estate, this is a great way to see if this is right for you without a big commitment.
Do Your Due Diligence
Once you’ve got the lay of the land for your market, and you know how you want to invest, make sure you do your due diligence when looking for a property.
It’s really easy to get caught up in the momentum of a deal and wind up in over your head, so make a conscious choice to slow down and request all the documentation you need to make smart decisions.
Ask to see an income statement and a balance sheet if the property you’re interested in has been a rental before. If it hasn’t, then create your own balance sheet for the property so you can see what the actual costs associated with renting it out will be.
If you’ve decided to flip the house, look for comps in the neighborhood to make sure you can sell it and still see a profit.
Stay Strict with Your Budget & Timelines
One final note – no matter what method you go with, pay strict attention to your budget and your timelines.
It might seem like a good idea to throw in granite countertops to your flip home, or you might want to take an extra day to review a contract before turning it around, but you’ve got to be really judicious, because too many extras might end up costing you, and even a day too long in a particular period can put you on the hook for thousands in interest.
Real estate investing can be a healthy addition to just about any portfolio. As I said, it all starts with doing your homework, so if this idea interests you, start learning right away!
To a richer life,
— Nilus Mattive
Editor, The Rich Life Roadmap
Source: Daily Reckoning