Real estate has consistently been one of the most profitable investments around. The reason is simple: over time, real estate tends to appreciate in value. The fact that real estate will always be in demand doesn’t hurt either. But making it as a successful investor is not a matter of chance. Successful investors make their own luck, so to speak.
Another way to say it is that investors need to be equipped with certain fundamental things from the very start. There are five things that immediately come to mind:
1. Property and Investment Knowledge
At the top of the list is knowledge. Property investors need to have a basic working knowledge of both the property market and investing, as a whole. A new investor who understands neither one is setting himself up for huge losses. Going in blindly is more or less a fool’s errand.
In terms of the property market, there are certain fundamentals that never change. These are the things new investors should be knowledgeable of. They should understand things like market fluctuation, amortization, LTVs, different property types, etc. In terms of general investment knowledge, there are too many things to list here.
2. An Investment Strategy
Hand-in-hand with a working knowledge of property and investing is an actual strategy. An investment strategy starts with a long-term goal supported by multiple short-term goals along the way. It determines the type of property an investor will focus on. It includes a plan for obtaining properties on a consistent basis.
The second part of an investment strategy is figuring out how to turn investments into profits. With the investor buy, rehab, and sell? Perhaps he intends to buy and rent. Either way, no investment is worthwhile if it doesn’t offer a healthy return.
3. A Funding Source
New real estate investors will need a funding source to obtain their first few properties. This does not mean investors have to have a ton of cash sitting in the bank. Funding can be obtained through a variety of sources. The preferred option among seasoned investors is the hard money lender.
Actium Partners, a Utah hard money lender based in Salt Lake City, explains that real estate investors appreciate hard money lending because it is fast, flexible, and easier to obtain for real estate projects.
4. Some Cash Reserves
Real estate investors are not expected to fund their acquisitions entirely in cash. But that doesn’t mean that some cash is not required. It actually is. Hard money lenders tend to offer significantly lower LTVs compared to traditional lenders. That means higher down payments for borrowers. But even if a borrower decides to get a conventional loan, some sort of down payment will be required.
A general rule of thumb is to plan on putting down 35-50%. So, if a new investor has his eye on a $500k property, he would be wise to have access to a $250k down payment.
5. A Long-Term Outlook
Lastly, the most successful real estate investors make their money over time. Real estate is rarely a get-rich-quick endeavor. Therefore, new investors need to have a long-term mindset. They need to be willing to stick with it for many years. Those willing to do so can build large portfolios worth millions.
Although real estate investing has historically paid off, not everyone succeeds at it. It takes a certain kind of person with the right knowledge, resources, and strategy to make it work. If you think you have what it takes, you now know what you will need to get started. Best of luck to you!