Are you interested in getting started in real estate in 2020? While real estate investment is one of many great ways to build your passive income, it is also something to approach cautiously, and of course, do your research on first. Here are a few tips for getting started in real estate that can help you achieve your goals in 2020.
Getting Started In Real Estate
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1. Start With A Sober Look
Before you think about investing in real estate, you should have a very realistic and sober understanding of your own financial situation. There are some things you can do that will make investing easier. If you know where you stand, you know exactly what you can afford. With a clear mind, assess your current situation, and where you can realistically see yourself a year from now. This will also make it easier for you to choose the right property.
2. Credit Score In Hand
If you have a good credit score, more opportunities will open up for you, and you’ll have a better chance of getting financing terms you can live with. Be sure to check your credit report and question anything you notice that doesn’t seem right. Challenge anything you are sure is incorrect. Credit reports frequently have errors, and you don’t want your credit score lower than it actually should be.
3. Save For A Down Payment
The bigger the down payment you can afford, the better off you’ll be. Your monthly payments will be lower, your insurance premiums will cost less, and you’ll be eligible for more favorable terms on mortgages.
4. Do Plenty Of General Research
When people fail in real estate investment, lack of knowledge is often one of the chief culprits. A lot of people jump in without carefully considering what they’re getting themselves into. Some of the areas it pays to research include:
- Investment in general
- Real estate investing in particular
- The ins and outs of rental property management
- Landlording basics
- How to finance a property acquisition
- Terminology and best practices surrounding mortgages
5. Start With What You Can Handle
One of the best ways to learn anything is to just do it. But—if you bite off more than you can chew in real estate, it can sink you. If you’re just getting started in real estate, start small. Don’t be tempted by the promises of fast cash flow and large properties. Bigger investments can come later. Start out with a single-family property and learn the ropes personally—then work your way up.
6. Don’t Risk Too Much
Another benefit of starting small is you don’t have nearly as much to lose. If you make a mistake, you can recover and try again. Remember, too, that nearly any successful investor and business tycoon you can name started out small and failed a few times along the way.
7. Choose Locations Wisely
Before you even start looking at properties, start thinking about locations. Here’s what to look for in a location:
- Strong local economy
- Good job market
- Steady or growing population with immigration for work
- Local government investment in infrastructure
- Steadily rising rental rates
- Properties values that have been building equity consistently
8. Understand the Numbers
To be successful as a real estate investor, you need to know how to run the numbers. Here are some numbers you should become familiar with. For more details about these and other metrics read my real estate terms four-part series. Also, don’t forget to take advantage of my free online calculators.
- CAP Rate: The CAP rate, or capitalization rate, gives you an idea of the return on investment you can get from your property. It’s a quick way for you to compare properties. To find your CAP rate for any property, divide the estimated net profit by the current market value. The higher the percentage, the better the deal.
- Cash-on-Cash Returns: Cash on cash return measures the return that you, as an investor, can expect to make after you factor in the mortgage payments. To calculate it, divide your annual pretax cash flow by your total cash invested.
- Net Yield: Your net yield on an investment property is everything you’re bringing in from rent and any other income minus all operating expenses. Your operating expenses could be maintenance and upkeep, property tax, municipal fees, and paying a property manager, but typically you do not figure your mortgage into your net yield.
9. Remember It’s A Business
It may seem obvious, but to be a successful investor, you have to think about this as a business proposition. You should prepare a solid plan, just as you would if you were starting a business. Your plan needs to include actionable items and both short-term and long-term goals.
10. Find A Mentor
A mentor can help you understand where you’re vulnerable, double-check a deal, and just give you good financial advice when you need it most. Mentors are a great idea in many areas of life, but never more than in real estate investment.
Get Started In Real Estate Today
Getting into real estate can feel like a big deal—and for good reason. With the help of these 10 steps, you’ll be well-prepared to begin your career in real estate. As with any other career, stay educated on changing markets and practices. With the right combination of research and action, you’ll be prospering in no time.