The great thing about real estate is that even in a bad economy, it will usually fare better than stocks. Land, after all, is a finite resource. People need a place to live, work, shop and play — so real estate is really just a matter of supply and demand. Furthermore, real estate will continue to appreciate despite occasional slow-downs in the economy. In fact, it’s proven to be the best way to create wealth, and an investor need not be a genius or a millionaire to succeed.
Here are some tips on getting started and succeeding in real estate investing:
Plan your financial goals
Before you buy that first property, or do your first analysis, determine what you expect from your investments. What are your financial goals? We often discuss the “time vs. money” concept: The more you have of one, the less you need of the other to reach your financial goals. This means that you shouldn’t shy away from taking the time to understand your goals and make sure each investment is a step toward achieving them. If you are unsure exactly how to create financial goals, meeting with a financial adviser is an excellent first step.
A thorough financial analysis
Be realistic. Look at different alternatives to determine which makes the most financial sense. And never buy property at a higher price or on less attractive terms than your analysis says made sense. Be wary of sellers that try to over-estimate the value of the property through pro-forma (estimated) data. While you can certainly use a pro-forma to start the conversation, make sure you know the real numbers before closing. Look at previous years’ tax returns, property-tax bills, maintenance records, etc. to get a good idea of the real income and expenses.
Look at plenty of properties
Don’t just grab the first property you look at. Too many investors buy properties because they “look nice,” or the investors don’t want to put the work in to look at what’s really out there. Remember, you won’t be living there, so don’t make your investment decision based on your personal preferences. While you shouldn’t fall into the trap of analysis paralysis, make sure you are thorough in looking through properties. Give yourself a wide range of options, then narrow them down based on the criteria (goals) you have set for yourself.