3 things you must do to succeed in real estate investing

Here are three simple guidelines to follow if you plan to succeed in real estate investing. Of course, this is not everything, but at the very least, you should be prepared for this if you want to become a successful real estate investor.

Let’s see shall we?

Recognize the basics

Investing in real estate involves the purchase, holding and sale of rights to real estate with the expectation of using cash inflows for potential future cash outflows and, thus, obtaining a profitable rate of return on these investments.

More profitable than investing in stocks (which usually require more capital from investors), investing in real estate offers the advantage of a significant use of real estate. In other words, with real estate investing, you can use other people’s money to increase your rate of return and control a much larger investment than would otherwise be possible. Moreover, by renting out the property, you can practically use other people’s money to pay off the loan.

But in addition to leverage, real estate investing provides investors with other benefits, such as yield on annual after-tax cash flows, building equity through asset appreciation and after-tax cash flows upon sale. Plus, non-monetary returns like pride of ownership, security that you’re in control of the property, and portfolio diversification.

Of course, capital is required, there are risks associated with real estate investing, and investment real estate can be intensive to manage. However, real estate investment is a source of wealth and that should be motivation enough to want to improve it.

Understand the elements of return

Real estate is not bought, held or sold on emotion. Real estate investing is not a love affair; it’s about return on investment. Therefore, prudent real estate investors always consider these four basic elements of profitability to determine the potential benefits of buying, holding or selling profitable real estate investments.

  1. Cash flow – the amount of money that comes in from rent and other income minus what goes to operating expenses and debt service (loan payments) determines the property’s cash flow. In addition, real estate investment is related to the cash flow of investment real estate. You are acquiring an income stream from the rental property, so make sure the numbers you rely on later to calculate your cash flow are true and correct.

  2. Appreciation is the increase in the property’s value over time, or the future sale price minus the original purchase price. However, the basic truth to understand about appreciation is that real estate investors are buying the income stream from the investment property. So it stands to reason that the more income you can sell, the more you can expect your property to be worth. In other words, determine the likelihood of increased revenue and factor that into your decision-making process.

  3. Amortization of the loan – This means the periodic reduction of the loan over time, resulting in an increase in capital. Because lenders evaluate rental properties based on income flow, when purchasing a multifamily property, provide lenders with clear and concise cash flow statements. Real estate with an accurate reflection of the lender’s income and expenses increases the investor’s chances of obtaining favorable financing.

  4. Tax Shelter – This means a legal way to use real estate investment to reduce your annual or final income tax. However, there is no one-size-fits-all option, and the prudent real estate investor should consult a tax professional to determine which tax laws apply to the investor in a particular year.

Do your homework

  1. Form the correct position. Get rid of the idea that investing in rental properties is like buying a home and develop the attitude that investing in real estate is a business. Look beyond curb appeal, exciting amenities and desirable floor plans unless they contribute to income. Focus on the numbers. “Only women are beautiful,” an investor once told me. – What are the numbers?

  2. Develop a real estate investment objective with meaningful goals. Have a plan with stated goals that best frames your investment strategy; it is one of the most important elements of successful investing. What do you want to achieve? By what time do you want to achieve this? How much money are you willing to invest comfortably and what rate of return are you hoping to get?

  3. Research your market. Understanding as much as possible about the real estate market conditions surrounding the rental property you are looking to purchase is a necessary and smart approach to real estate investing. Find out about property values, rents and occupancy rates in your area. You can contact a qualified real estate professional or talk to the county tax collector.

  4. Learn terms and returns and how to calculate them. Learn the ins and outs of real estate investing and learn terms, formulas, and calculations. There are sites on the Internet that provide free information.

  5. Consider investing in real estate investment software. The ability to create your own rental property analysis gives you more control over how the cash flow numbers are displayed and a better understanding of the property’s profitability. There are software vendors on the Internet.

  6. Establish a relationship with a real estate professional who knows the local real estate market and understands rental properties. Spending time with an agent will not help you achieve your investment goals unless that person is knowledgeable about investment properties and is well-prepared to help you make the right purchase. Work with a real estate investment specialist.

That’s it. As succinct an insight into real estate investing as I could possibly give without boring you to death. Just take them to heart with a bit of common sense and you’ll be fine. Here’s to investing success.

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