I created the following rules of successful real-estate investing over my many 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
Data is the new currency. Without it you are cursed to follow other people?s guidance without knowing if it?s bad. Knowledge will also help take you from being a ?good? Investor to becoming a great financier, and that data will help provide a passive stream of revenue for you or your family.
2. Set Investment Goals
A goal isn't the same as a wish; you may want to be rich, but that doesn?t mean you?ve ever taken steps to make your wish come true.
Setting clear and specific investment goals becomes your road map and action plan to becoming financially independent. You are statistically far more likely to achieve monetary independence by writing down specific and detailed goals than not doing anything whatsoever.
Your goals can include the amount of properties you want to get every year, the once a year cash-flow they generate, the sort 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 viewpoint in mind. Never speculate on quick 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 customarily 6 to 9 months after the fact when you find out. Don?t chase after appreciation. Only invest in prudent value plays where the numbers sound right 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 to the before-tax cash-flow from your property.
Cashflow is the ?glue? That keeps your investment together. Your equity will grow over a period of 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 U. S. is a really enormous country made from loads of local real-estate markets. Each market goes up and down independently of one another due to many local factors. As such, you need to recognise that there are times when it makes sense to invest in a specific market, and occasions when it does not. Only invest in markets when it is sensible to do so , not as you live there or you bought property there before. There?s a factor of timing and you don?t desire to beat the trend.
6. Take a Top-Down Approach
Always begin by choosing the best markets that align with your investment goals. Most financiers begin by analyzing properties with little to no regard of its location. This is a major mistake if you don?t consider the investment given the market and neighborhood it?s in.
The best way is to first select your town or town based on the condition of its housing market and local economy (unemployment, job expansion, population growth, and so on.). From there you would narrow things down to the best districts (comforts, faculties, crime, renter demand, etc.). Finally, you would look for the neatest deals within those neighborhoods.
7. Diversify Across Markets
Focus on one market at a time, amassing from 3 to 5 income properties per market. Once you?ve added those 3 to 5 properties to your portfolio, you would diversify into another prudent market that is geographically different than the previous one. Typically that suggests focusing on another state.
One of the underlying reasons for diversification within the same asset group (real-estate), is to have your assets spread all over different economic centres. Each home market is ?local? And each housing market moves independently from each other. Expanding across multiple states helps reduce your ?risk? Should one market decline for any valid reason (increased unemployment, increased taxes, etc.).
8. Use Professional Property Management
Never manage your own properties unless you run your own management company. Property management is a rude job that requires a solid knowledge of tenant-landlord laws, good promoting skills, and strong people skills to deal with renter complaints and excuses. Your time costs and will be spent on your folks, your career, and attempting to find more property.
9. Keep Control
Be a direct investor in real estate. Never own real-estate through funds, partnerships, or other paper-based investments where you own shares or other securities of an entity you don?t control. You mostly want to be in control of your real estate investments. Don?t leave it to corporations. Or fund managers.
10. Leverage Your Investing Funds
Real-estate is the sole investment where you can borrow other people?s money (OPM) to purchase and control income-producing property. This permits you to leverage your investment funds into more property than buying using ?all cash? Leverage magnifies your general rate-of-return and accelerates your money creation.
As long as you have positive cash-flow and your tenants are paying down your mortgage for you, it would be dumb not to borrow as much as practicable to buy more revenue property.
1. Educate Yourself
Data is the new currency. Without it you are cursed to follow other people?s guidance without knowing if it?s bad. Knowledge will also help take you from being a ?good? Investor to becoming a great financier, and that data will help provide a passive stream of revenue for you or your family.
2. Set Investment Goals
A goal isn't the same as a wish; you may want to be rich, but that doesn?t mean you?ve ever taken steps to make your wish come true.
Setting clear and specific investment goals becomes your road map and action plan to becoming financially independent. You are statistically far more likely to achieve monetary independence by writing down specific and detailed goals than not doing anything whatsoever.
Your goals can include the amount of properties you want to get every year, the once a year cash-flow they generate, the sort 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 viewpoint in mind. Never speculate on quick 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 customarily 6 to 9 months after the fact when you find out. Don?t chase after appreciation. Only invest in prudent value plays where the numbers sound right 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 to the before-tax cash-flow from your property.
Cashflow is the ?glue? That keeps your investment together. Your equity will grow over a period of 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 U. S. is a really enormous country made from loads of local real-estate markets. Each market goes up and down independently of one another due to many local factors. As such, you need to recognise that there are times when it makes sense to invest in a specific market, and occasions when it does not. Only invest in markets when it is sensible to do so , not as you live there or you bought property there before. There?s a factor of timing and you don?t desire to beat the trend.
6. Take a Top-Down Approach
Always begin by choosing the best markets that align with your investment goals. Most financiers begin by analyzing properties with little to no regard of its location. This is a major mistake if you don?t consider the investment given the market and neighborhood it?s in.
The best way is to first select your town or town based on the condition of its housing market and local economy (unemployment, job expansion, population growth, and so on.). From there you would narrow things down to the best districts (comforts, faculties, crime, renter demand, etc.). Finally, you would look for the neatest deals within those neighborhoods.
7. Diversify Across Markets
Focus on one market at a time, amassing from 3 to 5 income properties per market. Once you?ve added those 3 to 5 properties to your portfolio, you would diversify into another prudent market that is geographically different than the previous one. Typically that suggests focusing on another state.
One of the underlying reasons for diversification within the same asset group (real-estate), is to have your assets spread all over different economic centres. Each home market is ?local? And each housing market moves independently from each other. Expanding across multiple states helps reduce your ?risk? Should one market decline for any valid reason (increased unemployment, increased taxes, etc.).
8. Use Professional Property Management
Never manage your own properties unless you run your own management company. Property management is a rude job that requires a solid knowledge of tenant-landlord laws, good promoting skills, and strong people skills to deal with renter complaints and excuses. Your time costs and will be spent on your folks, your career, and attempting to find more property.
9. Keep Control
Be a direct investor in real estate. Never own real-estate through funds, partnerships, or other paper-based investments where you own shares or other securities of an entity you don?t control. You mostly want to be in control of your real estate investments. Don?t leave it to corporations. Or fund managers.
10. Leverage Your Investing Funds
Real-estate is the sole investment where you can borrow other people?s money (OPM) to purchase and control income-producing property. This permits you to leverage your investment funds into more property than buying using ?all cash? Leverage magnifies your general rate-of-return and accelerates your money creation.
As long as you have positive cash-flow and your tenants are paying down your mortgage for you, it would be dumb not to borrow as much as practicable 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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