I came up with the following rules of successful real estate investing over my years of successes and failures. These are the same rules I follow today and share with our customers at Norada Real Estate Investments.
1. Educate Yourself
Knowledge is the new currency. Without it you are cursed to follow other people?s guidance without knowing if it?s bad or good. Knowledge will also help take you from being a ?good? Financier to turning into a great financier, and that data will help give a passive stream of earnings for you or your folks.
2. Set Investment Goals
A goal isn't the same as a wish; you may need to be rich, but that doesn?t mean you?ve ever taken steps to make your wish come true.
Setting clear and precise investment goals becomes your map and bullet point plan to becoming financially independent. You are statistically far more certain to achieve monetary independence by writing down specific and detailed goals than not doing anything whatsoever.
Your goals can include the quantity of properties you want to acquire every year, the yearly cash-flow they generate, the kind of property, and the site of each. You may additionally want to set parameters on the rates of return required.
3. Never Speculate
Always invest with a long-term perspective in mind. Never speculate on quick short-term gains in appreciation, even in a heated market experiencing double-digit gains. You never can say when a market will peak and it?s often 6 to 9 months later when you find out. Don?t chase after appreciation. Only invest in prudent value plays where the numbers make sense from the start.
4. Invest for Cash flow
With few rare exceptions, always buy investment property with a positive cash-flow. The higher, the better. Your cash-on-cash return is related directly to the before-tax cash-flow from your property.
Cash-flow is the ?glue? That keeps your investment together. Your equity will grow over time (through appreciation and loan amortization), while the cash-flow covers the operating expenses and debt service on your property.
5. Be Market Agnostic
The United States is a very enormous country made up of hundreds of local real-estate markets. Each market goes up and downwards independently of one another due to several local factors. As such, you must recognise that there are occasions when it is smart to invest in a specific market, and times when it doesn't. Only invest in markets when it is sensible to do that not because you live there or you purchased property there before. There?s a factor of timing and you don?t need to go against the trend.
6. Take a Top-Down Approach
Always start by selecting the best markets that align with your investment goals. Most financiers start by investigating properties with little or no regard of its location. This may be a bad error if you don?t consider the investment in light of the market and neighborhood it?s in.
The best path is to first select your city or town based on the health of its housing market and local economy (unemployment, job growth, population growth, for example.). From there you would narrow things down to the best districts (amenities, colleges, crime, renter demand, and so on.). Ultimately, you would look for the best deals within those areas.
7. Diversify Across Markets
Focus upon one market at a time, accumulating from 3 to 5 earnings properties per market. Once you?ve added those 3 to 5 properties to your portfolio, you would diversify into another cautious market that is geographically different than the previous one. Usually that suggests targeting another state.
One of the base reasons for diversification in the same asset class (real estate), is to have your assets spread across different business centres. Every market is ?local? And each housing market moves independently from one another. Diversifying across multiple states helps in cutting your ?risk? Should one market decline for any reason (increased unemployment, increased taxes, for example.).
8. Use Professional Property Management
Never manage your own properties unless you run your own management firm. Property management is a rude job that needs a solid appreciation of tenant-landlord laws, good promoting skills, and strong people skills to deal with tenant complaints and excuses. Your time has value and should be spent on your family, your career, and searching for more property.
9. Maintain Control
Be a direct financier in real estate. Never own real estate through funds, partnerships, or other paper-based investments where you own shares or other instruments of an entity you don?t control. You always want to be in charge of your real estate investments. Don?t leave it to firms. Or fund executives.
10. Leverage Your Investing Capital
Real-estate is the sole investment where you can borrow other people?s money (OPM) to buy and control income-producing property. This lets you leverage your investing funds into more property than buying using ?all cash? Leverage magnifies your general rate-of-return and accelerates your wealth creation.
As long as you have positive cash-flow and your renters are paying off your mortgage for you, it would be dumb not to borrow as much as practical to buy more earnings property.
1. Educate Yourself
Knowledge is the new currency. Without it you are cursed to follow other people?s guidance without knowing if it?s bad or good. Knowledge will also help take you from being a ?good? Financier to turning into a great financier, and that data will help give a passive stream of earnings for you or your folks.
2. Set Investment Goals
A goal isn't the same as a wish; you may need to be rich, but that doesn?t mean you?ve ever taken steps to make your wish come true.
Setting clear and precise investment goals becomes your map and bullet point plan to becoming financially independent. You are statistically far more certain to achieve monetary independence by writing down specific and detailed goals than not doing anything whatsoever.
Your goals can include the quantity of properties you want to acquire every year, the yearly cash-flow they generate, the kind of property, and the site of each. You may additionally want to set parameters on the rates of return required.
3. Never Speculate
Always invest with a long-term perspective in mind. Never speculate on quick short-term gains in appreciation, even in a heated market experiencing double-digit gains. You never can say when a market will peak and it?s often 6 to 9 months later when you find out. Don?t chase after appreciation. Only invest in prudent value plays where the numbers make sense from the start.
4. Invest for Cash flow
With few rare exceptions, always buy investment property with a positive cash-flow. The higher, the better. Your cash-on-cash return is related directly to the before-tax cash-flow from your property.
Cash-flow is the ?glue? That keeps your investment together. Your equity will grow over time (through appreciation and loan amortization), while the cash-flow covers the operating expenses and debt service on your property.
5. Be Market Agnostic
The United States is a very enormous country made up of hundreds of local real-estate markets. Each market goes up and downwards independently of one another due to several local factors. As such, you must recognise that there are occasions when it is smart to invest in a specific market, and times when it doesn't. Only invest in markets when it is sensible to do that not because you live there or you purchased property there before. There?s a factor of timing and you don?t need to go against the trend.
6. Take a Top-Down Approach
Always start by selecting the best markets that align with your investment goals. Most financiers start by investigating properties with little or no regard of its location. This may be a bad error if you don?t consider the investment in light of the market and neighborhood it?s in.
The best path is to first select your city or town based on the health of its housing market and local economy (unemployment, job growth, population growth, for example.). From there you would narrow things down to the best districts (amenities, colleges, crime, renter demand, and so on.). Ultimately, you would look for the best deals within those areas.
7. Diversify Across Markets
Focus upon one market at a time, accumulating from 3 to 5 earnings properties per market. Once you?ve added those 3 to 5 properties to your portfolio, you would diversify into another cautious market that is geographically different than the previous one. Usually that suggests targeting another state.
One of the base reasons for diversification in the same asset class (real estate), is to have your assets spread across different business centres. Every market is ?local? And each housing market moves independently from one another. Diversifying across multiple states helps in cutting your ?risk? Should one market decline for any reason (increased unemployment, increased taxes, for example.).
8. Use Professional Property Management
Never manage your own properties unless you run your own management firm. Property management is a rude job that needs a solid appreciation of tenant-landlord laws, good promoting skills, and strong people skills to deal with tenant complaints and excuses. Your time has value and should be spent on your family, your career, and searching for more property.
9. Maintain Control
Be a direct financier in real estate. Never own real estate through funds, partnerships, or other paper-based investments where you own shares or other instruments of an entity you don?t control. You always want to be in charge of your real estate investments. Don?t leave it to firms. Or fund executives.
10. Leverage Your Investing Capital
Real-estate is the sole investment where you can borrow other people?s money (OPM) to buy and control income-producing property. This lets you leverage your investing funds into more property than buying using ?all cash? Leverage magnifies your general rate-of-return and accelerates your wealth creation.
As long as you have positive cash-flow and your renters are paying off your mortgage for you, it would be dumb not to borrow as much as practical to buy more earnings property.
About the Author:
Marco Santarelli is an investor, author and founder of Norada Real Estate Investments -- a nationwide real estate investment firm providing turnkey investment property in growth markets around the U. S.. "10 Rules of Successful Real Estate Investing" was originally published on the Real Estate Investing Blog.
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