The premise of real estate investing holds a lot of promise, but it can also be a daunting endeavor. While only 4.3% of single-family houses owned by investors were vacant during the first quarter of 2016, a favorable market doesn’t automatically equal success. New investors need to make a point to avoid some of the most common (and costly) mistakes early on. If you want to prosper in this industry, the following five tips can be a great place to start.
- Do your research
We cannot stress this enough: you cannot afford to go into this new venture blindly. You must have a strong understanding of the market in which you’re looking to invest and constantly strive to stay up-to-date. Market conditions can change rapidly as the economy grows and diminishes. There are always going to be emerging property trends and shifting demographics to contend with. Make sure all of the decisions you make are informed ones. Otherwise, you may end up losing big time.
- Don’t underestimate your expenses
Every property owner has a tendency to underestimate ongoing expenses. If you’re not careful, you could end up being stuck with huge hidden costs — particularly when purchasing older single-family homes. While you can’t escape maintenance costs and some repairs, don’t take on a property that could derail your budget. Keep in mind that extensive remodeling and repairs could really impact your ability to find a tenant. The longer it takes to complete these projects, the more rent you’ll lose out on. When looking at properties to purchase, make sure you aren’t biting off more than you can chew (or feasibly pay for).
- Remember to network
While real estate investing may appeal to lone wolves, you’ll still need to make contacts to be successful. Don’t be afraid to attend networking events, find local real estate association meetings, and build relationships with others in your field. Members of these groups can provide valuable information and be of great value down the road. When you need a recommendation for a contractor or a property manager — or if you need to buy or sell a particular piece of property — these individuals will be a great resource. If you attend seminars, workshops, and even webinars, you’ll be able to continue your education while meeting experienced investors from all across the country.
- Focus on your taxes
First of all, make sure that you’re taking advantage of all possible tax benefits. By purchasing your own home prior to buying an investment property, for example, you’ll be able to take advantage of tax incentives. Working with an experienced accountant is a must here, since there are probably some other ways you can save money on your taxes as well (such as write-offs and passive losses). Since there are going to be some major changes to tax laws over the next few years, your accountant’s expertise will be priceless here.
- Surround yourself with a trustworthy team
Remember what we said earlier about building relationships? Some of the most important relationships you’ll need to build are with your core team members. This includes your accountant, general contractor, developer, broker, co-investors, and more. Make sure that you can trust these individuals implicitly and that you don’t bring anyone into the fold you’re on the fence about. Note that even though you may trust your close friends and family members, that doesn’t mean you should work with them. It can be tough to conduct business the way you really want (and need) to when you’re worried about hurting these relationships.
- Do your research
Real estate investment certainly isn’t a simple venture, but it can be one that’s endlessly rewarding. As long as you keep these tips in mind, you’ll be well on your way to developing a promising future.