Rules For Successful Real Estate Investing

After many years of failures and successes, I developed the following rules for successful real estate investment. These are the same rules that I use today to share with clients at Chandlerdavidsmith.

1. Educate yourself

Knowledge is the new currency. You cannot follow the advice of others without knowledge.

You can also learn from “good” investors to become great ones. This knowledge will provide passive income for your family and help you build wealth. We have different real estate investing courses for beginners.

2. Set investment goals

A goal is not the same as a wish. You may want to be wealthy, but it doesn’t necessarily mean that you have ever taken steps towards making your dream come true.

To become financially independent, you must set clear and precise investment goals. Statistically, it is statistically more likely that you will achieve financial independence if you set specific goals and objectives than if nothing is done.

You can set goals such as the number of properties that you want to acquire each year and how much cash flow they generate. The type of property you choose, its location, and the type. It is also possible to establish return rates.

3. Never speculate

Keep a long-term view in mind when investing. Do not speculate on short-term appreciation gains, even in heated markets with double-digit gains. It’s impossible to predict when a market will peak, and you usually find out 6 to 9 months later. Do not chase appreciation. Only invest in value plays that make sense.

4. Invest for Cash-Flow

With very few exceptions, you should always purchase an investment property that has a positive cash flow. Higher cash flow is better. Cash-on-cash returns are directly proportional to cash flow before taxes from your property.

Your investment is held together by cash flow. Over time, your equity will increase (through loan amortization and appreciation), while cash flow will cover the operating expenses on your property.

5. Be Market Agnostic

The United States is an enormous country that includes hundreds of local real-estate markets. Due to local factors, each market is able to move independently from the others. You should understand that not all markets are the same. There will be times when investing in one market makes sense. You should only invest in markets when it is sensible to do so. Timing is important and you shouldn’t be following the crowd.

6. Use a top-down approach

Start by choosing the best realty markets that match your investment goals. Investors tend to focus on the location of properties when they are analyzing them. If you don’t look at the neighborhood and market it is in, this can lead to a costly mistake.

It is best to choose your town or city based on its health and economy (unemployment rate, job growth, local population growth, etc.). Then you can narrow down your search to the most desirable neighborhoods (amenities and schools, crime, renter-demand, etc.). You would then look for the best deals in those areas.

7. Diversify across Markets

Concentrate on one market at the time and accumulate 3 to 5 income properties in each market. After you have added the 3 to 5 properties, diversify your portfolio into another market that is more geographically diverse than the one you are currently in. This usually means that you will be focusing your attention on another state.

Diversification within the same asset category (real estate) is possible by having your assets spread across various economic centers. Each real estate market is unique and moves in its own way. If one market falls for any reason (increased joblessness, higher taxes, etc.), diversifying across multiple states can reduce your “risk”. ).

This hotbed of buyer activity could prove to be very beneficial for real estate investors. Just ask the many overseas investors who have chosen Houston as their preferred city to invest for the future.

8. Use Professional Property Management

If you do not own your property management business, you should never manage your own properties. It is a tedious job that requires good knowledge of tenant-landlord laws and marketing skills. You also need to be able to communicate with tenants about complaints and other issues. Your time is valuable. It should be used to support your family and your career.

9. Keep Control

Be a direct investor in real estate. You should never own real estate through partnerships, funds, or other paper-based investments. You should always be in charge of your real property investments. Do not leave this up to fund managers or corporations.

10. Your Investment Capital can be leveraged

Real Estate is the only investment that you can borrow money from other people (OPM), to buy and manage income-producing properties. You can leverage your investment capital to purchase more property than you could if you bought it all cash. Leverage increases your overall rate of return and speeds up your wealth creation.

It is a smart decision to borrow as much money as possible to purchase more income property, as long as your cash flow is positive and your tenants pay your mortgage.