10 Rules of Successful Real Estate Investment
I created the following rules of successful property investing over my many years of successes and screw ups. These are the same rules I follow today and share with our clients at Norada Real Estate Investments.
1. Educate Yourself
Knowledge is the new currency. Without it you are condemned to follow other people?s guidance without knowing if it?s good or bad. Data will also help take you from being a ?good? Investor to becoming a great investor, and that information will help give a passive stream of revenue for you or your folks.
2. Set Investment Goals
A goal is different from 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 express investment goals becomes your map and plan to becoming independent in a money sense. You are statistically far more certain to achieve financial independence by writing down express and detailed goals than not doing anything at all.
Your ambitions can include the quantity of properties you need to acquire each 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 needed.
3. Never Speculate
Always invest with a long term point of view under consideration. Never speculate on fast short-term gains in appreciation, even in a heated market experiencing double-digit gains. You never know 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 cautious 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 costs and debt service on your property.
5. Be Market Agnostic
The U. S. is a really enormous country made from masses of local property markets. Each market goes up and down independently of one another due to many local factors. As such, you should recognize that there are times when it is sensible to speculate in a particular market, and occasions when it does not. Only invest in markets when it is sensible to do so , not because you live there or you bought property there before. There?s a factor of timing and you don?t want to buck the trend.
6. Take a Top-Down Approach
Always start by choosing the best markets that align with your investment goals. Most speculators start by researching properties with virtually no regard of its location. This may be a major mistake if you don?t consider the investment in light of the market and neighborhood it?s in.
The best way is to first choose your city or city based primarily on the healthiness of its housing market and local economy (unemployment, job growth, population expansion, and so on.). From there you would narrow things down to the best neighborhoods (conveniences, colleges, crime, renter demand, etc.). Eventually, you would go looking for the best deals within those neighborhoods.
7. Diversify Across Markets
Focus on 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 prudent market that's geographically different than the prior one. Usually that implies focusing on another state.
One of the underlying reasons for diversification within the same asset group (property), is to have your assets spread all over different business centers. Every real estate market is ?local? And each housing market moves independently from each other. Diversifying across multiple states helps in cutting your ?risk? Should one market decline for any reason whatsoever (increased unemployment, increased taxes, and so on.).
8. Use Professional Property Management
Never manage your own properties unless you run your own managing company. Property management is a rude job that requires a solid knowledge of tenant-landlord laws, good promoting abilities, and strong people skills to handle tenant grumbles and excuses. Your time is valuable and may be spent on your folks, your career, and attempting to find more property.
9. Maintain Control
Be a direct investor in real estate. Never own property through funds, partnerships, or other paper-based investments where you own shares or other instruments of an entity you don?t control. You mostly wish to be in control of your real estate investments. Don?t leave it up to companies. Or fund managers.
10. Leverage Your Investment 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.
So long as you have positive cashflow and your renters are paying off your home loan for you, it would be foolish not to borrow as much as practical to buy more revenue property.
1. Educate Yourself
Knowledge is the new currency. Without it you are condemned to follow other people?s guidance without knowing if it?s good or bad. Data will also help take you from being a ?good? Investor to becoming a great investor, and that information will help give a passive stream of revenue for you or your folks.
2. Set Investment Goals
A goal is different from 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 express investment goals becomes your map and plan to becoming independent in a money sense. You are statistically far more certain to achieve financial independence by writing down express and detailed goals than not doing anything at all.
Your ambitions can include the quantity of properties you need to acquire each 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 needed.
3. Never Speculate
Always invest with a long term point of view under consideration. Never speculate on fast short-term gains in appreciation, even in a heated market experiencing double-digit gains. You never know 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 cautious 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 costs and debt service on your property.
5. Be Market Agnostic
The U. S. is a really enormous country made from masses of local property markets. Each market goes up and down independently of one another due to many local factors. As such, you should recognize that there are times when it is sensible to speculate in a particular market, and occasions when it does not. Only invest in markets when it is sensible to do so , not because you live there or you bought property there before. There?s a factor of timing and you don?t want to buck the trend.
6. Take a Top-Down Approach
Always start by choosing the best markets that align with your investment goals. Most speculators start by researching properties with virtually no regard of its location. This may be a major mistake if you don?t consider the investment in light of the market and neighborhood it?s in.
The best way is to first choose your city or city based primarily on the healthiness of its housing market and local economy (unemployment, job growth, population expansion, and so on.). From there you would narrow things down to the best neighborhoods (conveniences, colleges, crime, renter demand, etc.). Eventually, you would go looking for the best deals within those neighborhoods.
7. Diversify Across Markets
Focus on 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 prudent market that's geographically different than the prior one. Usually that implies focusing on another state.
One of the underlying reasons for diversification within the same asset group (property), is to have your assets spread all over different business centers. Every real estate market is ?local? And each housing market moves independently from each other. Diversifying across multiple states helps in cutting your ?risk? Should one market decline for any reason whatsoever (increased unemployment, increased taxes, and so on.).
8. Use Professional Property Management
Never manage your own properties unless you run your own managing company. Property management is a rude job that requires a solid knowledge of tenant-landlord laws, good promoting abilities, and strong people skills to handle tenant grumbles and excuses. Your time is valuable and may be spent on your folks, your career, and attempting to find more property.
9. Maintain Control
Be a direct investor in real estate. Never own property through funds, partnerships, or other paper-based investments where you own shares or other instruments of an entity you don?t control. You mostly wish to be in control of your real estate investments. Don?t leave it up to companies. Or fund managers.
10. Leverage Your Investment 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.
So long as you have positive cashflow and your renters are paying off your home loan for you, it would be foolish not to borrow as much as practical to buy more revenue 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 emerging markets around the U. S.. "10 Rules of Successful Real Estate Investing" was originally published on our Real Estate Investing Blog.
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