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November 18th, 2014 by Joel Cone
Investors are attracted to investing in real estate because the potential for profit is tremendous. However, the possibility of losing it all is always lurking in the back of investors’ minds because, as with any investment, there is risk involved.
Successful real estate investing is achievable at any point in time, despite the economic conditions. Although change is inevitable, the risk involved is manageable, as long as the investor continues to follow a few basic principles.
Here’s what a few seasoned real estate investors have to say about investing in real estate through different market conditions and types of real estate markets.
Tips for novices. The single most important first step for aspiring real estate investors is to determine one’s exit strategy, according to Andy Heller, author of “Buy Low, Rent Smart, Sell High.” There are quite a few options, but the two basic strategies are to buy and hold rental properties and become a landlord, or to become a flipper and hopefully make a substantial profit upon the sale of the property.
“You need to ask yourself what characteristics will make that exit strategy work. You need to buy the right property to be successful,” says Heller, who has specialized in the Atlanta real estate market for decades.
Like any investment, real estate investing requires an action plan. “Once you decide you want to scale it, it is important to look at the funds, the time, your credit and your long-term goals so that what you want to do is achievable and realistic,” Heller says.
His recommendation for novices is to join a local investor’s club and get to know the people there. “It’s rare that you can find somebody who can start up in real estate without some guidance. My advice to a new investor would be to join an association, find seasoned investors, buy them lunch and present your plan. Ask them to poke holes in it.”
Scott Mednick, president of OCRE forum, a real estate investor club, and founder of Marblehead Group Inc., agrees. But he also has a warning for novices looking for information on how to get started in the business.
“The other side of the fence in this business is that people get sucked into these $40,000 to $50,000 boot camps,” Mednick says. “Don’t do those. You’re going to end up buying things you don’t really need. If you’re new in the business, the best advice I can give is to go to a local bookstore and read through books on real estate investing. Find the best one or two books and buy those.”
Tony Alvarez has worked in the Southern California real estate business for decades. Alvarez says all real estate investors are aiming for “that moment in time where we have accumulated enough income-producing real estate to provide us with a comfortable standard of living, regardless of economic conditions or political nonsense.”
For people new to real estate investing, Alvarez advises first determining which type of real estate investing they want to get into and why. Then they should choose a specific target market and study it intensely. Next, set a goal, form a business plan and establish systems to achieve the desired goal. Lastly, investors should take small, common sense steps daily toward achieving that goal, such as talking with sellers, owners and local real estate professionals.
Tips for seasoned investors. As for veteran investors, these longtime professionals have some sage advice for them as well. Heller’s advice for seasoned investors may be surprising, especially since these people are already at the top of their game.
“It’s to stay humble,” Heller says. “Humility is a huge asset and a huge skill for any businessman. In real estate, I see investors all the time who think they walk on water. That hurts them sometimes in the buying process, and it definitely hurts them if they rent their properties. The lack of humility will eventually cost them money.”
Next, Heller says investors should have plenty of money put aside to act as a buffer of sorts. Once an investor has scaled out to a larger portfolio of properties, it is important to have enough cash on hand in order to rehabilitate 10 to 15 percent of those properties every year.
“Be prepared. Plan for the best, but prepare for the worst,” Alvarez advises. “Insurance is true asset protection. Investors should insure themselves as if the world is coming to destroy them and insurance is their only defense.”
In the end, Alvarez says true enemies to wealth creation include greed, procrastination, laziness, imagined fears and lack of information and education, to name a few.
From a flipper’s perspective, Mednick says seasoned professionals need to stay focused on location and price. “The best advice is don’t overpay for what you’re buying, because you’ll get squeezed on the back end by buyers,” he recommends. “If you overpay and over-rehab, you’re not going to make the profit you need.”
Buyers still want a good deal in this market, so they are being pickier. They want to see more properties, and time is on their side so they are not pulling the trigger as fast. They want to make sure they have a good location.
In addition to building personal relationships with real estate professionals, potential deals can be found using online resources such as NoradaRealEstate.com, RealtyTrac.com and Auction.com, as well as local and national listing services.
Advice for all investors. To Heller, the biggest appeal of investing in real estate is that there are many ways to make money by leveraging money – whether it’s the investor’s own money or someone else’s.
Alvarez says deals are still available. “Forget the past and stop waiting. Learn to look where you never have. Think ‘creating’ a deal, not ‘finding’ a deal.”
Lastly, investors should not be afraid to adopt multiple exit strategies when circumstances call for it.
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