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

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Buch:Real estate investment for dummies

Real estate investment for dummiescovers tried-and-true real estate investing strategies that real people, just like you, are using to build wealth. Investing in real estate isn't rocket science, but it does require you to do your homework. So if you've been hoping to become a billionaire overnight then you haven't come to the right place, but if you're looking for a solid long-term investing strategy and the tools to get there then thenReal estate investment for dummiesis the right book for your needs.

Real Estate Investing Cheat Sheet For Dummies - Dummies (6)©Andrey_Popov/

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The following are some of the key principles that we will cover later in this book:

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

Eric and Roberts Principles for Successful Real Estate Investing

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.

About this article

This article is from the book:

  • real estate investment for dummies,

About the authors of the book:

Eric Tyson, Masters in Business Administration,is a renowned financial advisor, columnist and author of several successful financial publications.

Tony Martin, B. Comm,is a nationally recognized personal finance expert, speaker, commentator, columnist, management coach and communications consultant. He is co-author ofPersonal Finance for Canadians for Dummies.

Laurence C. Harmon, JD,is the CEO of HARMONLEYLLC specializing in housing related property management and legal services.

Roberto S. Griswold, MBA, MSBA,is a successful real estate investor and property manager with a large portfolio of residential and commercial rental properties.

You can find this article in the category:

  • property ,
  • Public and private real estate funds
  • How to qualify real estate inspectors for real estate investments
  • 10 steps to real estate investment success
  • 10 ways to increase the value of a property
  • Real estate investment risk management plan
  • View all articles in the book
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What is the 50% rule in real estate investing? ›

Like many rules of real estate investing, the 50 percent rule isn't always accurate, but it can be a helpful way to estimate expenses for rental property. To use it, an investor takes the property's gross rent and multiplies it by 50 percent, providing the estimated monthly operating expenses. That sounds easy, right?

What is the 1% rule in real estate investing? ›

The 1% rule of real estate investing measures the price of the investment property against the gross income it will generate. For a potential investment to pass the 1% rule, its monthly rent must be equal to or no less than 1% of the purchase price.

What is the 2% rule in real estate investing? ›

This is a general rule of thumb that determines a base level of rental income a rental property should generate. Following the 2% rule, an investor can expect to realize a gross yield from a rental property if the monthly rent is at least 2% of the purchase price.

What are the 4 real estate investment strategies? ›

When it comes to commercial real estate investment strategies, there are four main approaches: core, core plus, value added, and opportunistic. These investment strategies are not fundamentally different from each other–in all cases, investors buy properties with the goal of generating returns.

What is the 4 3 2 1 rule in real estate? ›

The 4-3-2-1 Approach

One simple rule of thumb I tend to adopt is going by the 4-3-2-1 ratios to budgeting. This ratio allocates 40% of your income towards expenses, 30% towards housing, 20% towards savings and investments and 10% towards insurance.

What is the 80% rule in real estate? ›

The 80% rule means that an insurer will only fully cover the cost of damage to a house if the owner has purchased insurance coverage equal to at least 80% of the house's total replacement value.

What is the 30% rule in real estate? ›

You may have heard it—the old rule that says, “Homeowners shouldn't spend more than 30% of their gross monthly income on housing.” The idea is to ensure they still have 70% of their income to spend on other expenses. The intent is good.

What is the 20% rule in real estate? ›

The rule, applicable in many financial, commercial, and social contexts, states that 80% of consequences come from 20% of causes. For example, many researchers have found that: 80% of real estate deals are closed by 20% of the real estate teams.

What is the golden formula in real estate? ›

In case you haven't heard of the so-called Golden Rule in house flipping, the 70% Rule states that your offer on a property should be no greater than 70% of the After Repair Value (ARV) minus the estimated repairs.

What is the 65 rule in real estate? ›

If the estate has a fiscal tax year-end, then the fiduciary must make a distribution from the estate to the beneficiaries within the first 65 days after the last day of the preceding tax year.

What is the 3% rule in real estate? ›

3: The price of your home should be no more than 3x your annual gross income. This is a quick way to screen for homes in an affordable price range. It also takes into consideration down payment percentages and prevents you from stretching too much, even with a high down payment.

What is the 70% rule in house flipping? ›

Get approved to buy a home.

The 70% rule helps home flippers determine the maximum price they should pay for an investment property. Basically, they should spend no more than 70% of the home's after-repair value minus the costs of renovating the property.

What is the 5% rule in real estate? ›

Multiply the value of the home by 5%, then divide that number by 12 to get your breakeven point. If the monthly rent on a comparable home is below the breakeven point, it makes financial sense to rent. If the monthly rent is higher than the breakeven point, it makes financial sense to buy.

What is the 10% rule in real estate investing? ›

No More Than 10 Percent Down Payment

Say, for example, that you purchased a property for $150,000. Following the rule, you put $15,000 (10 percent) forward as a down payment. Think of that 10 percent as all the skin you have in the game. The bank took care of the rest, and you'll cover that debt when you sell the home.

What is the 4% rule in real estate? ›

The 4% rule in retirement planning is used to determine how much you should withdraw from your retirement account each year. Basically, the idea is to give yourself a healthy stream of income, while maintaining an active account balance during retirement.

How accurate is the 50% rule real estate? ›

Bottom Line. The 50% rule in real estate is a quick way to calculate a rental property's expected profitability. The rule is not fixed, however, and it doesn't always provide an accurate picture of how much cash flow a property can generate.

What is the 70% rule in real estate investing? ›

The 70% rule can help flippers when they're scouring real estate listings for potential investment opportunities. Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home.

What is the golden formula in real estate investing? ›

In case you haven't heard of the so-called Golden Rule in house flipping, the 70% Rule states that your offer on a property should be no greater than 70% of the After Repair Value (ARV) minus the estimated repairs.

What is a 70/30 split in real estate? ›

A common agent/broker commission split is 70/30. In this case, 70% of the commission on a sale goes to the brokerage and 30% to the agent.

What is the 90 day rule in real estate? ›

If you plan to purchase a flipped home with an FHA loan, you must abide by the FHA 90-day flipping rule. This rule states that a person selling a flipped home must own the home for more than 90 days before home buyers can purchase the property.

What should you avoid in real estate? ›

  • Failing to Make a Plan.
  • Skimping on Research.
  • Doing Everything on Your Own.
  • Forgetting Real Estate Is Local.
  • Overlooking Tenants' Needs.
  • Getting Poor Financing.
  • Overpaying.
  • Underestimating Expenses.


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