I invented 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 clients at Norada Real Estate Investments.
1. Educate Yourself
Knowledge is the new currency. Without it you are doomed to follow other people?s advice without knowing if it?s good or bad. Knowledge will also help take you from being a ?good? Investor to changing into a great investor, and that information will help provide a passive stream of earnings for you or your folks.
2. Set Investment Goals
A goal is not like a wish; you may want to be rich, but that doesn?t mean you?ve ever taken steps to make your wish become reality.
Setting clear and express investment goals becomes your road map and plan to becoming financially independent. You are statistically far more certain to achieve monetary independence by writing down specific and detailed goals than not doing anything.
Your ambitions can include the quantity of properties you want to obtain every year, the once a year cash-flow they generate, the kind of property, and the situation of each. You might also want to set parameters on the rates of return needed.
3. Never Speculate
Always invest with a long-term perspective under consideration. Never speculate on quick short-term gains in appreciation, even in a heated market experiencing double-digit gains. You never can tell when a market will peak and it?s usually 6 to 9 months later when you find out. Don?t chase after appreciation. Only invest in prudent value plays where the numbers sound right from the beginning.
4. Invest for Cashflow
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.
Cashflow 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 particularly large country made from loads of local property markets. Each market moves up and down independently of one another due to many local factors. As such, you need to recognise that there are occasions when it is smart to speculate in a particular market, and occasions when it does not. Only invest in markets when it makes sense to do so , not as you live there or you purchased property there before. There?s a factor of timing and you don?t desire to go against the trend.
6. Take a Top-Down Approach
Always begin by choosing the best markets that align with your investment goals. Most financiers start by investigating properties with virtually no regard of its location. This can be a bad error if you don?t consider the investment given the market and neighborhood it?s in.
The best way is to first choose your town or city based primarily on the condition of its housing market and local economy (unemployment, job expansion, population growth, etc.). From there you would narrow things down to the best areas (comforts, faculties, crime, renter demand, etc.). Eventually, you would look for the best deals within those neighborhoods.
7. Diversify Across Markets
Focus on one market at a time, amassing from 3 to 5 revenue properties per market. Once you?ve added those 3 to 5 properties to your portfolio, you would diversify into another cautious market that's geographically different than the previous one. Usually that implies focusing on another state.
One of the fundamental reasons for diversification within the same asset sector (property), is to have your assets spread right across different business centers. Every real estate 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 reason (increased unemployment, increased taxes, for example.).
8. Use Expert Property Management
Never manage your own properties unless you run your own managing company. Property management is a thankless job that needs a solid appreciation of tenant-landlord laws, good marketing skills, and powerful social skills to cope with renter complaints and excuses. Your time has value and may be spent on your family, your career, and looking for more property.
9. Maintain Control
Be a direct investor in property. 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 need to be in control of your real estate investments. Don?t leave it up to corporations. Or fund chiefs.
10. Leverage Your Investing Capital
Property is the sole investment where you can borrow other people?s money (OPM) to purchase and control income-producing property. This lets you leverage your investment capital into more property than buying using ?all cash? Leverage magnifies your total rate-of-return and accelerates your money creation.
As long as you have positive cash-flow and your renters are paying off your home loan for you, it might be dumb not to borrow as much as possible to buy more earnings property.
1. Educate Yourself
Knowledge is the new currency. Without it you are doomed to follow other people?s advice without knowing if it?s good or bad. Knowledge will also help take you from being a ?good? Investor to changing into a great investor, and that information will help provide a passive stream of earnings for you or your folks.
2. Set Investment Goals
A goal is not like a wish; you may want to be rich, but that doesn?t mean you?ve ever taken steps to make your wish become reality.
Setting clear and express investment goals becomes your road map and plan to becoming financially independent. You are statistically far more certain to achieve monetary independence by writing down specific and detailed goals than not doing anything.
Your ambitions can include the quantity of properties you want to obtain every year, the once a year cash-flow they generate, the kind of property, and the situation of each. You might also want to set parameters on the rates of return needed.
3. Never Speculate
Always invest with a long-term perspective under consideration. Never speculate on quick short-term gains in appreciation, even in a heated market experiencing double-digit gains. You never can tell when a market will peak and it?s usually 6 to 9 months later when you find out. Don?t chase after appreciation. Only invest in prudent value plays where the numbers sound right from the beginning.
4. Invest for Cashflow
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.
Cashflow 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 particularly large country made from loads of local property markets. Each market moves up and down independently of one another due to many local factors. As such, you need to recognise that there are occasions when it is smart to speculate in a particular market, and occasions when it does not. Only invest in markets when it makes sense to do so , not as you live there or you purchased property there before. There?s a factor of timing and you don?t desire to go against the trend.
6. Take a Top-Down Approach
Always begin by choosing the best markets that align with your investment goals. Most financiers start by investigating properties with virtually no regard of its location. This can be a bad error if you don?t consider the investment given the market and neighborhood it?s in.
The best way is to first choose your town or city based primarily on the condition of its housing market and local economy (unemployment, job expansion, population growth, etc.). From there you would narrow things down to the best areas (comforts, faculties, crime, renter demand, etc.). Eventually, you would look for the best deals within those neighborhoods.
7. Diversify Across Markets
Focus on one market at a time, amassing from 3 to 5 revenue properties per market. Once you?ve added those 3 to 5 properties to your portfolio, you would diversify into another cautious market that's geographically different than the previous one. Usually that implies focusing on another state.
One of the fundamental reasons for diversification within the same asset sector (property), is to have your assets spread right across different business centers. Every real estate 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 reason (increased unemployment, increased taxes, for example.).
8. Use Expert Property Management
Never manage your own properties unless you run your own managing company. Property management is a thankless job that needs a solid appreciation of tenant-landlord laws, good marketing skills, and powerful social skills to cope with renter complaints and excuses. Your time has value and may be spent on your family, your career, and looking for more property.
9. Maintain Control
Be a direct investor in property. 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 need to be in control of your real estate investments. Don?t leave it up to corporations. Or fund chiefs.
10. Leverage Your Investing Capital
Property is the sole investment where you can borrow other people?s money (OPM) to purchase and control income-producing property. This lets you leverage your investment capital into more property than buying using ?all cash? Leverage magnifies your total rate-of-return and accelerates your money creation.
As long as you have positive cash-flow and your renters are paying off your home loan for you, it might be dumb not to borrow as much as possible to buy more earnings 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 growth markets around the U. S.. "10 Rules of Successful Real Estate Investing" was originally published on the Real Estate Investing Blog.
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