After years of both successes and failures, I have developed a set of rules for successful real estate investing. These rules are still followed today and shared with clients at Norada Real Estate Investments.
Rules of Successful Real Estate Investing
Educate Yourself
Knowledge has become a valuable currency in today’s world. Without proper guidance, individuals may find themselves blindly following advice without discerning its quality or potential drawbacks.
Having knowledge can elevate your status as an investor, transforming you from good to great. This knowledge can also generate a steady stream of passive income for you and your family.
Set Investment Targets
A goal is not the same as a dream. Just because you want to be rich doesn’t mean you’ve ever done anything to make that happen. You can become financially independent by making a clear road map and action plan for your investments. Stats show that putting down clear and specific goals is much more likely to help you become financially independent than doing nothing.
Your goals can include how many properties you want to buy each year, how much cash flow they will bring in each year, what kind of properties you want to buy, and where they should be located. You might also want to set limits on the rates of return that you need.
Also Read: Understand Air Rights Guide in NYC Before Buying
Invest for Cash-Flow
Almost always, when you buy an investment property, it should have a good cash flow. The higher it is, the better. Your property’s before-tax cash flow is directly linked to your cash-on-cash return.
The “glue” that holds your stock together is cash flow. Over time, your equity will grow due to the property’s value going up and the loan being paid off. Meanwhile, the cash flow will cover your property’s working costs and debt service.
Be a Market Agnostic
There are hundreds of real estate markets all over the United States, which is a very big country. There are many local factors that cause each market to go up and down on its own. Because of this, you should know that investing in a market doesn’t always make sense. Don’t put money into markets just because you live there or have bought property there before. Do it only when it makes sense to. Time is important, and you don’t want to go against the grain.
Diversify Across Markets
Pay attention to one market at a time and buy three to five rental homes in that market. After adding those three to five homes to your portfolio, you would move on to a smarter market that is in a different part of the world. For most people, that means concentrating on a different place.
One main reason to diversify within the same asset class (in this case, real estate) is to spread your money out across different economic hubs. It’s important to remember that each home market is “local” and moves at its own pace. Spreading your money out over several states lowers your “risk” in case one market goes down for any reason, like higher taxes, unemployment, or something else.
Professional Property Management
If you don’t run your own property management company, you should never take care of your own rentals. It’s not fun to be a property manager, and you need to know a lot about tenant-landlord rules, be good at marketing, and be able to deal with tenants’ complaints and excuses. Your time is important, and you should use it to spend with your family, at work, and looking for more land.
Leverage Your Capital
Real estate is the only investment where you can borrow other people’s money (OPM) to buy land that makes money for you. This lets you use your investment money to buy more properties than if you bought them “all cash.” Using leverage increases your general rate of return and speeds up the process of getting rich.
If your rentals are giving you money and your mortgage is being paid off, you should borrow as much as you can to buy more rental properties.
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