5 Successful Real Estate Investing Tips for 2020
There will always be a real estate market. In a civilized world, a roof over your head is as essential as food, clothing, energy, and water. Real estate investors are essential to keeping this vital human need available at a reasonable price.
There are many different ways a person can participate and prosper with real estate.
For most people, their only real estate investment is where they live: Their home is their biggest investment.
During the real estate boom from 2000 to 2007, many amateurs got involved with flipping houses—buying low and hoping to sell higher. As you know, many flippers flopped and lost everything. In true investor vocabulary, flipping is known as speculating or trading. Some people call it gambling. While flipping is one method of investing, there are many, more sophisticated, less risky ways to do well with real estate.
Real estate gives you control over your investments—if you have a financial education.
In the volatile times of early 2009, millions of people were losing trillions of dollars simply because they handed over control of their wealth to other people. Even since the middle of 2008, the great Warren Buffett’s fund, Berkshire Hathaway, has lost 40 percent of its value!
Now, millions of people have lost their jobs, which means they had no control over their own employment either. The real real estate professionals have control over both their businesses and investments.
Select the Market
Most people think the property itself is the most important thing when looking at real estate. But the truth is the market is much more important than the property. That’s the first rule to remember when looking to invest in real estate.
Perform a market analysis which should include demographics, or statistical data about a particular population, such as the people in the city in which you want to invest. Demographic research provides a snapshot of population, income, industries, biggest employers, and other economic details for a particular city or area.
For example, in Phoenix, the market is booming and is among the top five housing markets in 2020. With the attraction of new businesses to the area, Phoenix’s population is one of the fastest-growing in the country according to the US Census Bureau in 2019. A growing population equals a need for housing.
But also true when examining your market is to concentrate on an area close to home—one that you can get to know really well. Drive, walk, or bicycle around that area regularly. Is it growing or dying? Are there many “For Sale” or “For Rent” signs? Also, find two or three brokers who operate in that area. You can find this out simply by seeing who has the most “For Sale” signs posted. Call these brokers and ask them about the area. What has sold recently and for how much? What do properties rent for, and who rents here? How long are properties typically on the market before selling?
Why do you want to do this? When a property comes on the market, you’ll know very quickly whether it’s a good deal or not, and you’ll be able to move quickly. In fact, if you really get to know an area well, you may even hear about a new property before it comes on the market and get a real jump on the competition.
My wife, Kim’s, first real estate investment was in an area close enough to our home that we could jog there. She’d walk, run or drive through the area at least three times a week to pick up any changes happening in the neighborhood.
Once you’ve selected where you want to invest, the next step is to find the right property.
Select the Property
Whether it’s storage units, multi-family housing, or single-family housing, when you select a property look for the following two factors:
- Seek out the least expensive sections within the market you have chosen
- Look for problem properties. This equals opportunity
Once you’ve identified a potential investment property, it’s time to closely study the property for both short-term and long-term opportunities. You will want to put each prospective property through a rigorous review, using the following criteria:
- Cash Flow
- Cash-on-Cash Return
- Capitalization Rate
- Gross Rent Multiplier
- S.W.O.T. (Strengths, Weaknesses, Opportunities, Threats)
One of my favorite examples is when my wife, Kim, and I came across an apartment building in Phoenix, Arizona, with a 37% vacancy rate—a pretty high number. Nobody else would touch it. But we asked ourselves the following question: “How can we solve this problem?” It turned out the property was being run as a hotel: People could rent a fully furnished apartment for anywhere from a week to a year. One not-so-small problem—no one wants to be in Phoenix in the summer, so most of the units sat vacant during those months. To make a long story short, we did our research and converted the property from short-term hotel rentals to regular long-term rental apartments. The vacancy rate went from 37% to 3%—and the property’s value soared. We were winning on both cash flow and capital gains!
Build Your Team
Remember, rich dad always said, “Investing is a team sport.” If you intend to become a real estate investor you will want a strong team of real estate advisors.
Successful real estate investors realize the value of surrounding themselves with experts in a range of areas—taxes, the law, real estate, insurance, property management, etc. When these experts come together out of trust, respect, and a mutually desirable outcome, they learn from and support each other, effectively improving the outcomes and streamlining the process.If you want to be successful in life, you need to have experts that are on your side that you can turn to for advice.
Key players for your team include an attorney, a CPA to help with accounting and taxes, an objective and well-vetted broker, various experts in real estate, mentors, and coaches. It does not matter how talented you think you are, you need to surround yourself with a very good team!
When you are seeking financing, and this is true for any investment, you must have a plan. Business plans can be very simple or complex based on the number of moving parts, issues, or challenges your particular real estate transaction might have. All of this has a significant impact on the type of financing that you should pursue.
One of the great advantages of real estate is, of course, leverage—using other people’s money to make money for you. And it all starts with how you finance the deal on the property you’ve now got under contract. Financing investment real estate can seem like a daunting proposition: talking to lenders, comparing interest rates, getting together all the paperwork necessary to apply for a loan.
The most traditional financing sources are:
- Local banks, mortgage companies, and savings and loans
- Private funds
- Assumable mortgages
- Owner financing
And remember, if these above options don’t work for you, it doesn’t mean give up on your dream of being a real estate investor, it means it’s time to get creative!
Find a Mentor
A mentor is usually someone who has more experience and success in something that you are doing or want to pursue. This is a trusted person who guides you along the way. And because mentors are successful at what you want to be doing, they can relate to what you are going through themselves.
I have used many mentors and coaches throughout my life, in many different areas. For example, I have a fitness coach who helps me stay in shape physically. If I have questions about investments, real estate, the economy, and more, I have numerous mentors I can turn to—each with a wealth of experience and opinions to share. These people help me brainstorm ideas and work through problems.
Mentors help you stay on track. Let’s face it. Pursuing anything that’s worthwhile in life takes time and effort. And with all of the distractions today—social media, the Internet, television, cell phones, etc.—it can be easy to procrastinate and avoid the things that really need to be done in order to obtain your goals.
Instead, refocus your mission. If it’s real estate investing, talk to friends or coworkers with experience in real estate investing.
Editor, Rich Dad Poor Dad Daily