Rules for Real Estate Investors
So, you want to be a real estate investor huh? Or, you have been doing this for a while and looking for easier ways to find the best deals, maximize your cash flow, and save boatloads of time. Either way, you’ve come to the right place. Whether you are just learning or simply reviewing, you need to know these 5 key rules for real estate investors!
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The first step to any real estate investment deal is financial education. If you are new to real estate, this is the first and most important step. Everyone either knows someone who had a bad experience with real estate or had a deal or two go wrong themselves. Most of the time it is due to lack of education or information on the particular subject or investment. There are some exceptions, and real estate investing isn’t 100% risk free, but financial education is key to minimizing your risk.
Real estate seminars, books, and real estate investor clubs in your area are a good way to start. By the way, you don’t need to spend $10K on a seminar no matter what anyone tells you! To find an investor club in your area, hop on meetup.com to find the one nearest you. For those in the Cedar Rapids/Iowa City area, this is the one we prefer: Iowa City Area Real Estate Investor Meetup.
2. Build a Strong Team
Your team of advisors is paramount in being successful in real estate. This sounds daunting (and expensive) at first, but most of your advisors won’t cost you anything until you land that income producing property. These advisors more than pay for themselves as you find great deals below market value, maximize your cash flow, and protect your assets.
Realtor®: Familiar with the market and neighborhood.
Lender: Assist you with your financing needs.
Accountant: CPA who will work on your real estate taxes.
Insurance Agent: Protect your property from disaster.
Property Manager: Manage your property so you can focus on growing your business.
Home Inspector: Give your property a whole house inspection to catch major issues before purchase.
Attorney: Help you form your business entity so you keep your real estate and your personal assets separate (i.e. a business entity such as an LLC.)
3. The 100/10/3 Rule
One rule we like to follow is the 100/10/3 rule. What does this mean? Here we go:
100 – The number of properties that you need to look at, typically online or through your Realtor®)
10 – The number of properties (out of your 100 checked) you pursue in more detail (i.e. physically looking at, running more in depth calculations, etc.)
3 – The number of properties (out of your short list of 10) you aggressively make an offer on. These three should be good enough that you wouldn’t mind owning all three of them. This doesn’t necessarily mean you have to purchase and make offers on all three of them through, unless you have the means to. Make offers one at a time until you get the deal that satisfies your cash flow goals.
4. Plan for and Manage Risk
Don’t build a house of cards! It’s easy to get wrapped up in the real estate investing game and over-extend yourself, especially when leveraging. Keep at least 6-12 months worth of mortgage payments per property as a buffer to weather vacancies that may occur. It’s also wise to be able to cover the mortgage payment with your personal income in this circumstance too. Having both of these mitigations would allow you to keep the property alive for 6-12 months during a vacancy, even if you lost your job during that period. Don’t leave it to chance by leaving out your safety net.
5. Find a Good Mentor
This builds off #2 a little. Do what Isaac Newton referred to as “standing on the shoulders of giants.” Millions of people invest in real estate, in fact, there are approximately 28.1 million who are already investing. You are certainly among friends, and working with a mentor who has “been there, done that” will be very beneficial. Again, the real estate meetups are a great place to start.
So, get out there and take the plunge, knowing that there are vast educational resources available, a strong team to fortify your real estate mission, a steadfast rule to keep you real estate search thorough, a mitigation plan to combat risks, and a mentor to see it all through.
Before you leave:
Don't forget to check out our free rental property calculator. This will be a valuable tool in your arsenal as you analyze your existing or potential rental properties.
- Free version available.
- We'll calculate your offer price based on your desired cash flow or cap rate.
- See future property projections based on the economic outlook including:
- Enter your dwelling value and get your depreciation schedule.
- Analyze your profits after sale based on using a Realtor or not.
- Pick and choose from 12 different data elements (ex. annual income, expenses, cash flow...) to dynamically display your data on an interactive graph.
- Check out the useful links to help you evaluate your investment.
Thank you for your ongoing support and happy investing!
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The information presented does not consider your particular investment objectives or financial situation and does not make personalized recommendations. This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, AssetRover recommends consultation with a qualified tax advisor, CPA, Financial Planner or Investment Manager.