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Things You Must Do to Succeed at Real Estate Investing
Here are three simple guidelines that must be followed if you plan to succeed at real estate investing. It's not everything,
of course, but at the very least, you must be willing to commit to these things if you want to become a successful real
estate investor. Shall we get stared?
Acknowledge the Basics
Real estate investing involves acquisition, holding, and sale of rights in real property with the expectation of using cash
inflows for potential future cash outflows and thereby generating a favorable rate of return on that investment.
More advantageous then stock investments (which usually require more investor equity) real estate investments offer the
advantage to leverage a real estate property heavily. In other words, with an investment in real estate, you can use other
people's money to magnify your rate of return and control a much larger investment than would be possible otherwise.
Moreover, with rental property, you can virtually use other people's money to pay off your loan.
But aside from leverage, real estate investing provides other benefits to investors such as yields from annual after-tax
cash flows, equity buildup through appreciation of the asset, and cash flow after tax upon sale. Plus, non-monetary returns
such as pride of ownership, the security that you control ownership, and portfolio diversification.
Of course, capital is required, there are risks associated with investing in real estate, and real estate investment property
can be management-intensive. Nonetheless, real estate investing is a source of wealth, and that should be enough motiva-
tion for us to want to get better at it.
Understand the Elements of Return
Real estate is not purchased, held, or sold on emotion. Real estate investing is not a love affair; it's about a return on
investment. As such, prudent real estate investors always consider these four basic elements of return to determine the
potential benefits of purchasing, holding on to, or selling an income property investment.
1. Cash Flow - The amount of money that comes in from rents and other income less what goes out for operating expenses
and debt service (loan payment) determines a property's cash flow. Furthermore, real estate investing is all about the invest-
ment property's cash flow. You're purchasing a rental property's income stream, so be sure that the numbers you rely on
later to calculate cash flow are truthful and correct.
2. Appreciation - This is the growth in value of a property over time, or future selling price minus original purchase price.
The fundamental truth to understand about appreciation, however, is that real estate investors buy the income stream of
investment property. It stands to reason, therefore, that the more income you can sell, the more you can expect your
property to be worth. In other words, make a determination about the likelihood of an increase in income and throw it into
your decision-making.
3. Loan Amortization - This means a periodic reduction of the loan over time leading to increased equity. Because lenders
evaluate rental property based on income stream, when buying multifamily property, present lenders with clear and concise
cash flow reports. Properties with income and expenses represented accurately to the lender increase the chances the
investor will obtain a favorable financing.
4. Tax Shelter - This signifies a legal way to use real estate investment property to reduce annual or ultimate income taxes.
No one-size-fits-all, though, and the prudent real estate investor should check with a tax expert to be sure what the current
tax laws are for the investor in any particular year.
Do Your Homework
1. Form the correct attitude. Dispel the thought that investing in rental properties is like buying a home and develop the
attitude that real estate investing is business. Look beyond curb appeal, exciting amenities, and desirable floor plans
unless they contribute to the income. Focus on the numbers. "Only women are beautiful," an investor once told me.
"What are the numbers?"
2. Develop a real estate investment goal with meaningful objectives. Have a plan with stated goals that best frames your
investment strategy; it's one of the most important elements of successful investing. What do you want to achieve? By
when do you want to achieve it? How much cash are you willing to invest comfortably, and what rate of return are you
hoping to generate?
3. Research your market. Understanding as much as possible about the conditions of the real estate market surrounding
the rental property you want to purchase is a necessary and prudent approach to real estate investing. Learn about property
values, rents, and occupancy rates in your local area. You can turn to a qualified real estate professional or speak with the
county tax assessor.
4. Learn the terms and returns and how to compute them. Get familiar with the nuances of real estate investing and learn
the terms, formulas, and calculations. There are sites online that provide free information.
5. Consider investing in real estate investment software. Having the ability to create your own rental property analysis gives
you more control about how the cash flow numbers are presented and a better understanding about a property's profitability.
There are software providers online.
6. Create a relationship with a real estate professional that knows the local real estate market and understands rental
property. It won't advance your investment objectives to spend time with an agent unless that person knows about invest-
ment property and is adequately prepared to help you correctly procure it. Work with a real estate investment specialist.
There you have it. As concise an insight into real estate investing as I could provide without boring you to death. Just take
them to heart with a dash of common sense and you'll do just fine. Here's to your investing success.
Article by James Kobzeff. He is the developer of ProAPOD Real Estate Investment Software Want to start working with
rental property today? Discover how to create cash flow, rate of return, and profitability analysis presentations in minutes