I invented the following rules of successful real estate investing over my years of successes and disasters. 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 doomed to follow other people?s information 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 give a passive stream of income for you or your family.
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 become true.
Setting clear and specific investment goals becomes your map and bullet point plan to becoming financially independent. You are statistically far more certain to achieve financial independence by writing down express and detailed goals than not doing anything.
Your goals can include the number of properties you need to acquire every year, the annual cash-flow they generate, the sort of property, and the site of each. You may also want to set parameters on the rates of return required.
3. Never Speculate
Always invest with a long-term point of view in mind. Never speculate on fast short term gains in appreciation, even in a heated market experiencing double-digit gains. You never can tell when a market will top and it?s customarily 6 to 9 months later when you find. Don?t chase after appreciation. Only invest in prudent value plays where the numbers appear sensible 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 directly related to the before-tax cash-flow from your property.
Cash-flow 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 United States is a very enormous country made of hundreds of local property markets. Each market moves up and down independently of one another due to many local factors. As such, you should recognise that there are occasions when it is smart to take a position in a particular market, and times when it does not. Only invest in markets when it makes sense to do it not as you live there or you bought property there before. There?s a factor of timing and you don?t want to beat the trend.
6. Take a Top-Down Approach
Always start by picking the best markets that align with your investment goals. Most financiers begin by analyzing properties with little to no regard of its location. This may be a bad error if you don?t consider the investment given the market and neighborhood it?s in.
The best path is to first select your town or town primarily 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 neighborhoods (amenities, schools, crime, renter demand, etc.). Ultimately, you would search for the most acceptable deals within those neighborhoods.
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 provident market that's geographically different than the previous one. Usually that suggests concentrating on another state.
One of the base reasons for diversification within the same asset group (real-estate), is to have your assets spread right across different economic centres. Each market is ?local? And each housing market moves independently from each other. Widening across multiple states helps cut your ?risk? Should one market decline for any valid reason (increased unemployment, increased taxes, and so on.).
8. Use Professional Property Management
Never manage your own properties unless you run your own management firm. Property management is a thankless job that requires a solid understanding of tenant-landlord laws, good promoting abilities, and robust social abilities to cope with tenant complaints and excuses. Your time has value and will be spent on your family, your career, and searching for more property.
9. Maintain Control
Be a direct financier in real-estate. Never own property through funds, partnerships, or other paper-based investments where you own shares or other securities of an entity you don?t control. You want to be in charge of your real estate investments. Don?t leave it up to companies. Or fund executives.
10. Leverage Your Investing Funds
Property is the only investment where you can borrow other people?s money (OPM) to buy and control income-producing property. This permits you to leverage your investment funds into more property than purchasing using ?all cash? Leverage magnifies your total rate-of-return and accelerates your money creation.
As long as you have positive cashflow and your renters are paying off your mortgage for you, it'd be silly not to borrow as much as practicable to buy more revenue property.
1. Educate Yourself
Knowledge is the new currency. Without it you are doomed to follow other people?s information 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 give a passive stream of income for you or your family.
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 become true.
Setting clear and specific investment goals becomes your map and bullet point plan to becoming financially independent. You are statistically far more certain to achieve financial independence by writing down express and detailed goals than not doing anything.
Your goals can include the number of properties you need to acquire every year, the annual cash-flow they generate, the sort of property, and the site of each. You may also want to set parameters on the rates of return required.
3. Never Speculate
Always invest with a long-term point of view in mind. Never speculate on fast short term gains in appreciation, even in a heated market experiencing double-digit gains. You never can tell when a market will top and it?s customarily 6 to 9 months later when you find. Don?t chase after appreciation. Only invest in prudent value plays where the numbers appear sensible 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 directly related to the before-tax cash-flow from your property.
Cash-flow 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 United States is a very enormous country made of hundreds of local property markets. Each market moves up and down independently of one another due to many local factors. As such, you should recognise that there are occasions when it is smart to take a position in a particular market, and times when it does not. Only invest in markets when it makes sense to do it not as you live there or you bought property there before. There?s a factor of timing and you don?t want to beat the trend.
6. Take a Top-Down Approach
Always start by picking the best markets that align with your investment goals. Most financiers begin by analyzing properties with little to no regard of its location. This may be a bad error if you don?t consider the investment given the market and neighborhood it?s in.
The best path is to first select your town or town primarily 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 neighborhoods (amenities, schools, crime, renter demand, etc.). Ultimately, you would search for the most acceptable deals within those neighborhoods.
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 provident market that's geographically different than the previous one. Usually that suggests concentrating on another state.
One of the base reasons for diversification within the same asset group (real-estate), is to have your assets spread right across different economic centres. Each market is ?local? And each housing market moves independently from each other. Widening across multiple states helps cut your ?risk? Should one market decline for any valid reason (increased unemployment, increased taxes, and so on.).
8. Use Professional Property Management
Never manage your own properties unless you run your own management firm. Property management is a thankless job that requires a solid understanding of tenant-landlord laws, good promoting abilities, and robust social abilities to cope with tenant complaints and excuses. Your time has value and will be spent on your family, your career, and searching for more property.
9. Maintain Control
Be a direct financier in real-estate. Never own property through funds, partnerships, or other paper-based investments where you own shares or other securities of an entity you don?t control. You want to be in charge of your real estate investments. Don?t leave it up to companies. Or fund executives.
10. Leverage Your Investing Funds
Property is the only investment where you can borrow other people?s money (OPM) to buy and control income-producing property. This permits you to leverage your investment funds into more property than purchasing using ?all cash? Leverage magnifies your total rate-of-return and accelerates your money creation.
As long as you have positive cashflow and your renters are paying off your mortgage for you, it'd be silly 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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