Real estate investors made up 17% of all homebuyers in October. The promise of increased rental demand and rental prices amid the pandemic fueled interest from investors.
Some of these investors might dream of getting rich from real estate. After all, that’s how most wealthy people build wealth.
It’s not always possible to make money from every real estate investment. You have to do your part and learn all about real estate investing before you dive in.
Start right here, right now by reading this guide to owning real estate and making serious money from it.
1. Create an Investment Plan
An investment plan is similar to a business plan. It’s where you’ll outline your investment goals, real estate investment strategies, and plan how you’ll become profitable.
If you have a full-time job, you’ll run into challenges. Break down your investment plan into small action items that you can do daily.
One action a day is enough to build momentum and propel you towards your ultimate goal, which is to get rich in real estate.
2. Build a Real Estate Team
A real estate investment doesn’t happen because you did all of the work yourself. Every real estate transaction takes a team of people to execute.
You need to have a team of professionals who can guide you. You’ll need to have a real estate agent to help you identify investment properties.
A mortgage broker will get the financing done. You should have a real estate attorney, appraiser, accountant, general contractor, and inspector in your network, too.
You’ll have to do research and interview people before you settle on one in each category to work with.
3. Get Your Financials Ready
How do you plan to finance your first property purchase? You’ll need to prove that you have the financial means that you can pay the mortgage and have at least 20% to put down on the property purchase.
Pull your credit report to make sure there are no surprises there. Make improving your credit score a priority if it’s below 700.
There are a few types of financing available for investment properties. Investors get a conventional mortgage or a hard money loan. Some will take the equity from their home and use that to finance another property.
4. Find Your First Real Estate Investment
Real estate is difficult to evaluate because it’s not a liquid asset like cash or stocks. Calculations like the capitalization rate and net operating income are just the start.
Take into account your investment strategy. Investors who plan to fix and flip have to calculate market values in the area and the costs to fix the property.
Rental properties have monthly operating costs along with initial startup costs. You’ll then need to calculate the rental income to determine profitability.
5. Build Your Portfolio
You won’t build wealth from a single real estate rental property. You’ll want to add to your portfolio and scale your business.
The key to building a real estate portfolio is to apply the same system to identify potential properties as you used for the first real estate purchase.
Don’t go crazy and buy a few properties at once. Purchase one property, integrate it into your business, and then get another property.
Smart real estate investors diversify when they build their portfolios. If you invest in nothing but rental properties in the same market and that market tanks, you’ll stand to lose a lot of money.
Diversify your portfolio by using different investment vehicles like real estate investment trusts and crowdfunding sites. Invest in different types of property, such as commercial real estate, and different locations.
This shields you from incurring major real estate losses. One area of your portfolio is likely to do well while another one struggles.
6. Keep Learning About Real Estate
There is so much to learn about real estate. Learn as much as you can before and after you purchase your first real estate property.
Join real estate investment groups, which you can find on Meetup and Facebook. Get yourself a mentor who has accomplished in real estate what you want to accomplish.
Read books about real estate investing and subscribe to local real estate and business publications. You’ll have your finger on the pulse of the local real estate market in no time.
7. Exit Strategies
At some point, you’re going to want to let go of a real estate property. It may reach its peak and you want to get out before the market nosedives.
You might want to flip a property to make a profit or upgrade to a larger property.
Preparing real estate exit strategies gets overlooked because people are too focused on getting into real estate investing.
When you purchase a property, you should have certain targets in mind to exit the investment. For instance, a target could be to sell a property when it reaches 15% in profit.
If you want to upgrade a property, look at using a 1031 exchange as an exit strategy. This lets you sell a property and purchase another property and defer capital gains taxes.
Keep in mind that there are a lot of rules to qualify and execute a 1031 exchange. This is something that you should add to your learning list.
Getting Rich From Real Estate the Right Way
The best possibility you have to build wealth is to invest in real estate. Getting rich from real estate takes work and knowledge. Yes, even in a hot real estate market like this one, you have to know what you’re doing.
Surround yourself with capable real estate and financial professionals, have a real estate investment plan, and buy your first property. You can slowly build your portfolio and build wealth by leveraging the right exit strategies.
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