7 Essential Tips New Real Estate Investors Must Not Ignore
Last week, we shared the success story of Brenda Kurtz and her family. We were moved by Brenda’s recollection of her father’s early retirement and the sage advice he passed on to her. Brenda and her husband Todd were able to break free from their comfort zone and make real estate investing work for them.
If you haven’t seen the original video or the blog with the interview with Brenda, please check it out at the related link directly below, otherwise stick around for Brenda’s 7 Tips that new real estate investors must not ignore!
Guest Blogger: Brenda Kurtz
Words of advice to give to a new investor who’s just getting started: 7 Essential Tips New Real Estate Investors Must Not Ignore!
1) Just do it!
If there’s any way you can do it now, don’t wait. Don’t put your financial security at risk, of course, but if you’ve got $20K sitting in an account somewhere, you would be MUCH better off to have it working for you in terms of cash flow, equity building, property appreciation, and tax benefits. Making good real estate investments is a great way to hedge against inflation and yield a healthy college fund or retirement fund. And, depending on how you manage your investments, there can be excellent short-term financial rewards as well. After all, this is how I was able to ‘retire’ while my kids are still at home and I still have time to enjoy them!
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2) Know your risk tolerance
My husband and I are fairly risk-averse, so we are going to analyze investments until we are 100% certain that our offer will yield the financial targets we’ve set. Unfortunately, we have lost some opportunities to other investors with higher risk tolerance. It can be disappointing, but as long as we’re on the same page and our current strategy is working for us, we will stay the course. The advice here is to set your targets early, know how flexible you can be with those targets, and don’t waste time on opportunities that fall outside of those parameters.
3) Set goals
What are we trying to accomplish here? When we started out, our first goal was, “Let’s buy a couple of properties and try to not lose money (or sanity).” We objectively evaluated every investment decision based on cap rate and other measures that we had set as minimum targets. Even if a property was super cute and recently remodeled and located next to a park, if the price and the net income didn’t reconcile, we didn’t buy it. Period.
- Year 1 – Goal achieved with very healthy returns.
- Year 2 – “Confirm that the income is sustainable and predictable.” Was year one a fluke or an expected trend? We put some money into the properties, evaluated the risk of vacancy, budgeted for future expenses, and – lo and behold – it appears to be predictable and sustainable.
- Year 3 – “How can one of us retire?” We determined the cash flow that we would need to live a normal lifestyle, and calculated the number of rental units that would get us to that cash flow – assuming that we continue the role of property manager. This meant we had to agree on how much time we were willing to put into this additional job.
4) Commit to working the number of hours required to meet your goals
If your goal is to diversify your portfolio and have long-term investment income, by all means, hire a property manager to oversee your rental properties. But if your goal is to yield maximum cash flow – whether to purchase additional properties or to retire early – you may find that you need to manage the properties yourself. That’s the route we decided to take. We had decided that it would take about 20 rental units (10 duplexes) to provide the income needed for one of us to retire. As we started out, we were able to pretty easily manage 5-6 duplexes in our spare time. We specifically purchased properties that would yield long-term tenants and immediately-filled vacancies. We have a maintenance man on call who provides reasonable and reliable service. And we became adept users of a Rental Property Manager accounting software for bill-paying, tax reporting, and ongoing investment analysis.
Once we hit about 7 or 8 properties, we were starting to feel the stress of this 3rd job in our household. My husband was taking a lot of tenant phone calls and scheduling maintenance visits. I was spending my Sunday afternoons on the computer balancing the books. We were pulling the kids into the painting/renovating parties that occurred when a new tenant would move in. This called for a serious re-evaluation of our goals. We decided that if we could not find and purchase strong investments (allowing one of us to retire) in the next year, we would need to hire a property manager. We buckled down and worked like crazy for the next 11 months, and voila! – some new opportunities fell into our laps, and we were at our target numbers for equity, return on investment, and cash flow. I would be lying if I said that last year was not exhausting – physically and mentally. So again, know what you are trying to accomplish with your investments, run your numbers, and commit to working as needed to realize your goals (or revise those goals as your situation changes).
5) Secure a strong support team
You will want to establish relationships with a senior banker, a responsive lawyer, and a reputable Property Manager, or, if you are going to be your own PM, you may need a reliable maintenance team and/or accountant if you need help in those areas. Also, a great relationship with an experienced and trusted Realtor is essential. You want a Realtor who will help you identify opportunities, be available to show properties on short notice, and be objective in his/her evaluation of the property’s value. In essence, your Realtor needs to actively contribute to a successful long-term relationship with you. Initially, we considered going with a newer Realtor who was a friend of the family, but then we realized that we needed a highly-respected Realtor with a long history in our community, strong relationships with other realtors, and a good understanding of the purchase of an investment property. Which leads to tip #6…
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6) Always remember that this is your business
You may want to enlist your sister-in-law as your Realtor, but does she know the investment market? Your cousin offers to act as your maintenance man, but does he have the experience and availability you will need? Oh, your BFF is a loan officer? Great, but does her bank offer the best terms on commercial loans? Or (this is where someone needed to lecture me), you may want to give a tenant a break on their rent when they fall upon hard times, but just how flexible should you be? My husband and I are pretty friendly, easy-going, laid-back people. The good news is that we don’t get too stressed out about unexpected challenges. The bad news is that we are susceptible to making personal decisions rather than business decisions (especially when it comes to tenants who are struggling to pay their rent on time). That said, this is a characteristic that we ‘own’ so we are able to recognize when we’re sliding into personal/subjective mode and pull ourselves back into business/objective mode.
7) Take time to appreciate what you are doing for your future
We all enjoy looking at our 401K accounts from time to time and watching them grow – knowing that we worked darn hard for that pile of retirement security! We need to do the same with our investment properties. At least annually, stop and take some time to assess your income, equity growth, and market values of your real estate assets. Appreciate and celebrate how that money has worked for you in the past, and how it will continue to serve you in the future! Make it a family affair. We have involved our kids in our rental property business, and they have learned valuable business and life lessons that they would not have otherwise been exposed to. They take pride in our properties and look forward to becoming more involved in the future. My daughter has already claimed one of the duplex units for her upcoming college years. We hope that she chooses to hold some of the investments after we are gone, and continue to build on her grandfather’s legacy.
Special thanks to Brenda Kurtz for providing this article! If you would like to be a guest blogger, please email us at [email protected] or leave us a comment below. Thanks for reading!
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