5 Successful Real Estate Investing Tips for 2020

There are many great reasons to invest in real estate. It has historically outperformed the stock market without suffering the daily market swings that give stock market investors indigestion. Investing in real estate gives you diversification to protect against inflation, volatility and, if buying multiple properties, protect against geographic vulnerability as well. The following are some great tips to pay attention to when you are thinking about investing in real estate.

Use the table of contents below to navigate through the blog:

1. Own your own home first
2. Pay attention to the numbers
3. Consider rental real estate instead of flipping
4. When you buy, consider future growth
5. Get a home inspection

1. Own your own home first

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If you are new to real estate investing, I highly recommend that you own your current residence. If you are still renting an apartment you won’t have the experience gathered that owning your own home will give you. There are nuances to ownership that you need to experience first-hand.

Another reason is that financing a 2^nd property will be easier if you own your 1^st property (you will find better interest rates and require less of down payment). You will receive better tax treatment as well. You can always sell it in a few years or better still keep it and turn it into a rental unit that will allow you to earn monthly income.

2. Pay attention to the numbers

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Buying a home, apartment or even a commercial property can become an emotional experience. You can get wrapped up in picturing yourself living in a new home and this can influence your buying decision. The best way to remove yourself from the emotional aspects is to delve into the financial numbers. After all this is the real reason to purchase investment property.

Research the costs of ownership. Vacancy rates, CAP rates, maintenance expenses and upcoming repairs. Assess the risk profile of your prospective tenants. Are they students or a single parent family? There are many factors to consider but do not neglect your own risk profile. 

3. Consider rental real estate instead of flipping

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Flipping houses has become very popular thanks to all the “reality shows” on HGTV that make it look fun and very lucrative. But Even if you don’t do the work yourself, flipping a house requires you to oversee the project and manage any contractors that are helping you with renovations.

The biggest difference between flipping housings and buying rentals is that flipping requires active management, while rentals earn you passive income from monthly rent.

That passive income is very nice to have. When you purchase a rental property, you do the work once and receive a monthly income for as long as it’s occupied or until you decide to sell. This cash flow can create significant income and wealth over time – especially as you grow your portfolio of properties.

Rental property is also less risky during a recession since you are not relying on the value of the real estate to support the investment. You are likely to experience appreciation over time which adds to your bottom line when you do decide to sell. Lastly there are tax benefits that come with owning rental properties – like deducting your expenses (property tax, maintenance fees, mortgage interest, etc).

4. When you buy, consider future growth

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You may eventually want to sell tomorrow whatever you buy today. Even if that tomorrow is 1 year or 10 years away you will want to sell it for more than what you paid for it. Evaluate your potential property carefully. Can you make simple upgrades or additions that will boost the value?

5. Get a home inspection

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Unless you are already a very experienced contractor it is worth the money to pay for a professional home inspection before making an offer on any real estate. Very often you will be able to use the discovery to negotiate a better selling price. It will also allow you to plan for future maintenance expenses.

That leads me to a final point. Work with people you know and trust. Get to know your bankers, co-investors, mortgage broker and especially your handyman. You need to be able to trust the advice these critical people are giving you. An aspect of that trust is to find out how they get paid. Do they get a commission from your business? Are they paid more to push you in one direction over another? For a handyman, check their references and don’t be afraid to really talk to the people that have used their services in the past.

Conclusion:

Real estate investing can be very lucrative. With hard work and a little luck, you set yourself up to receive a passive income for life that will grow your wealth and take care of you in retirement.

If you are not a beginner, this might interest you.