Real Estate Investing Cheat Sheet For Dummies - Dummies (2023)

Copyright © 2019 Eric Tyson and Robert S. Griswold. All rights reserved.

• Real estate is a proven vehicle for wealth creation.Investing in rental properties can generate significant ongoing income and tax benefits, as well as generate capital from appreciation over years and decades.
• While many people can successfully invest in real estate,invest in rental propertiesit's not for everyone.Before buying a property, consider your investment preferences and personal temperament. Do you have time to devote to real estate investment? Are you comfortable solving problems or hiring a property manager?
• Make sure you are financially sound before investing in rental properties.Pay special attention to your monthly budget and make sure you have adequate insurance cover. The most successful real estate investors build their real estate investment portfolios by saving money over the years and buying properties over time.
• Don't underestimate the importance of good credit.The best real estate returns are based on using credit to gain leverage through the use of OPM (Other People's Money).
• Your first real estate investment (and often one of your best) is buying a home to live in.Real estate is the only investment we know of that you can either live in or rent in order to generate income. You can also make big tax-free gains by selling your primary residence for more than you paid for it.
• Focus on residential real estate first.Home ownership is an attractive investment and is easier to understand, acquire and manage than most other types of real estate. If you are a homeowner, you already have experience in finding, buying and maintaining residential property.
• When it comes to residential real estate options, our top picks are small multi-family homes and single-family homes.For investors who don't want to deal with building maintenance and security issues, a townhouse makes the most sense. Condominium prices tend to work best in developed urban environments.
• Before you start serious property hunting, have your real estate team ready.Hire a real estate agent, loan officer, accountant, attorney, etc. from the start because with the best resources, the real estate investor can identify which properties to ignore and which deserve careful consideration. Move Fast – The speed with which you can close a trade is an advantage in any type of market.
• Look for properties in the progress path.The areas that are being developed or renovated are where you want them to be. The best real estate investment properties are those that are well located and physically sound, but have aesthetic issues and are poorly managed.
• You won't get rich trying to find real estate investment deals with no money.Don't believe the huckster infomercials. Don't expect to buy prime rental properties this way.
• With a down payment of at least 20 to 25 percent, you get access to the best financing conditions.You can make smaller advances, up to 10% or less, but you'll typically pay a much higher interest rate, loan fees, and private mortgage insurance. Leveraging, or using creditor funds to cover most of your acquisition costs, can increase your returns. But too much leverage can be dangerous when the rental market is changing and your debt costs are high.
• As the size and complexity of the business increases, financing options become less attractive.Financing options for larger multi-family (five units or more), commercial, commercial, industrial and vacant lots generally require more money up front and/or higher interest and loan rates. But more sophisticated real estate investors can enjoy higher total returns, along with the benefits of easier management and long-term tenant stability.
• For low entry costs, consider real estate investment trusts (REITs) and leasing options.You can buy these exchange-traded securities (which can also be purchased through REIT-oriented mutual funds) for $1,000 or less. With leasing options, you first rent a property that you may wish to purchase later, with a portion of your monthly rent going toward a future purchase. If you can find a seller willing to provide financing, you can keep the down payment to a minimum.
• We prefer the saying “location, location, value”.It clearly emphasizes location, but also the importance of finding value for your investment. Owning properties in up-and-coming areas with new construction or refurbished properties improves finding and retaining good tenants and leads to higher profits. Properties in great locations with extensive deferred maintenance, particularly cosmetic issues that can be addressed inexpensively is another great opportunity.
• Make real estate investments nearby.Buy a property in two hours using your preferred mode of transport. Don't go any further until you really know another property market and are there regularly for other reasons, or have found a great property manager.
• Every investment decision begins with an assessment of the general economic development in the region.If the area is not economically healthy, the probability of successful real estate investments decreases.
• When you buy an investment property, you are buying a future stream of income or cash flow.What you pay for a property and the cash flow generated from it makes a significant difference in the success of your investment. The key is to find out which properties have undervalued sellers.
• When assessing a property's potential, don't rely on seller numbers.Speak directly to the seller to find out the history of the property and the motivation for the sale. But do not rely on the historical operating results offered by the seller or broker. Develop your own numbers by valuing properties with a team of qualified professionals and experts in physical and tax property management.
• The strategy of buying and selling real estate investments can work, but it also has a downside.Buying and selling can be a way to make a quick buck in real estate if you plan your investments properly in a fast-growing real estate market. However, investing can result in your earnings being taxed as ordinary income and you could lose during a market downturn.
• In summary:Real estate professionals and you should value a property based on projected net operating income (NOI).Preferably plan the NOI for the coming years. Designing the NOI is time consuming and requires a great deal of expertise, especially if you are planning property modifications to increase revenue and/or reduce expenses.