As soon as you have set your mind on real estate as a means of investing, you have to make one major decision – whether to buy shares in a real estate investment trust (REIT) (which is very similar to investing in stocks and bonds) or to go for direct ownership (in which case you buy your own real estate property). Investing in an REIT might save you a lot of time and headaches as you will not need to pay for, manage, and maintain a property all by yourself. Instead, you will buy shares of a portfolio of properties which will be managed for you by the trust. But as we said, that’s more or less another type of investing in shares and bonds.
So, if you have decided to buy your own piece of real estate property instead, there are a few basic things to keep in mind. First of all, if you have some startup capital already, don’t wait for too long. Don’t wait for the right time. It’s better to start off sooner rather than later so that you can start making profits earlier. Start simple. With an apartment or a duplex or a small apartment building. Investing in real estate is to a large extent learning-by-doing. Don’t overwhelm yourself by starting bigger than you can afford or manage.
Although you don’t need to be an expert to know how to get started in real estate investing, you need to do your homework. No one knows everything about any topic. After all, you only become an expert after working in a field for a certain number of years. However, don’t do the opposite of jumping into real estate investments just because you have heard of someone making a large profit. Don’t rely on luck only. Study the niche you want to invest in as much as you can. Use various sources. Choose carefully the area in which you would like to buy a property. Are prices there on the rise? Is it getting overcrowded? How is the infrastructure around? These – and many more – are questions you have to answer before making an investment decision.
Network. The best way for a beginner to learn is by connecting with local investors. This doesn’t mean overwhelming them with questions and requests. However, do reach out. Successful investors are proud of their achievements and love to show off with them. Learn from their experiences to know how to get started in real estate investing.
Do the math. Don’t throw yourself in without making the proper calculations first. You need to know whether you can afford this investment. It’s simple – cashflow equals income minus expenses. Income is the rent that your tenants will pay you. Expenses are more complicated. In addition to the obvious mortgage and tax payments, you will need to include other less apparent costs such as maintenance. You can use a basic spreadsheet on your computer or download a cheap calculator from the internet to do the calculations.
Which bring us to the next point – learn to sacrifice. You will need to sacrifice – time, money, sleep… Once you become a landlord, you will receive phone calls with problems with your property (such as water leakage, let’s say) at all times of the day… and night. And you will need to fix them. Either by getting a professional to fix them (at a price, of course) or on your own (yes, the less convenient but cheaper option). So, you might need to learn to hold a paint brush or fix water pipes in order to save some money.
Down the road, it’s important to remember that your business is a business and treat it as such. Be organized, do proper management, improve your efficiency all the time. Do not make the mistake of burning yourself out as a landlord because you take it as a hobby or a job. It’s just a business.
Last but not least, don’t quit your job. Not just yet. Of course, for some people with the proper education and training, real estate can be both a job and an investment. But it doesn’t have to be the case. You can – or actually you SHOULD – keep your day job and invest in real estate on the side.