We all know that real estate is one of the best investments you can make. It appreciates, offers tax breaks, allows you to build equity, and is a powerful tool against inflation. However, that doesn’t make real estate any less risky than other types of investments; there are still a lot of variables to consider, as well as a lot of pitfalls that you need to avoid.
What do you need to know before you invest in your first property with all these things in mind? Here are several tips that every beginner investor should take to heart:
1. Look for the right people
Whether it’s a sponsor, an investor, or a multifamily lender for a source of funding, you need to learn how to find the right people to work with. Now, sniffing out the best people in the room can be tricky if you’re a beginner in the industry, but knowing what precautions to take is a great place to start.
In general, here are the types of people you should avoid:
- The ones who offer “too good to be true” deals
- The ones too secretive about their “strategies for success.”
- The ones who talk the most since the decision-makers are usually the quietest in the room
- The ones who are too aggressive; excessive aggression is a sign of desperation
Instead, look for these people:
- Successful investors that are willing to share their knowledge
- The investors with excellent track records
- The ones that offer value in return
- The ones that work well with other people
2. Build your knowledge base
With all the available resources, learning to invest in real estate is not as difficult as many people may think. Even if you have no real-life experience in the industry, you can learn a lot about finding deals, financing, mortgages, market conditions, and a lot of the nitty-gritty about real estate through podcasts, videos, books, and other sources—most of which are free or come at a meager cost.
You can also build your knowledge base by attending seminars, webinars, and other real estate events to learn from other people’s experiences. Aside from being a great way to gain industry knowledge, these events also provide many opportunities to network with other people in the field.
3. Find mentors
Having other people to guide you is always better than doing everything yourself, especially in an industry like real estate, where changes occur every day. Find mentors that can help you build your real estate portfolio most efficiently and productively possible—all while avoiding the pitfalls that may come your way.
After all, learning from other people’s experiences is a great way to make up for your lack of experience as a beginner. This is especially true if you find someone who has experienced what you are currently going through, whether a colleague, a business partner or simply someone you follow.
4. Learn about the costs involved
Compared to stocks or commodities, investing in real estate is a lot more expensive. Buying a property often requires a hefty upfront cost, not to mention all of the other expenses in between (e.g., closing costs, realtor fees, utilities, maintenance, etc.), which makes real estate investing risky. Know the costs involved, from essential maintenance to property taxes and the seemingly insignificant expenses like lawn maintenance and minor upgrades.
Not only do you need to have a significant amount of funds to invest, but you also need to secure your finances. Build a healthy emergency fund, downsize your debt, control your budget, and separate your business and personal funds outright. In this way, you can stay afloat even if your investment endeavors don’t work out, which is always a possibility.
5. Know when to walk away from a deal
It’s perfectly normal to be eager when you’re just starting in real estate, but it’s always important to know when to walk away. If a deal doesn’t make sense, it’s not a good deal, no matter how you put it. And if a deal is too good to be true, stick to your gut—it probably isn’t.
Knowing when to walk away is an essential skill that every real estate investor needs to have. The earlier you master it, the more you’ll be able to avoid bad deals in your career.
Investing in real estate is not easy, especially if you’re starting. It would help if you learned many things before you could get the hang of it. Nevertheless, there are many ways you can prepare for the journey ahead, like the ones mentioned above.