The Basics of Real Estate Investing

Written by: Justin Nolette,

August 25, 2020

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Real estate investment is an excellent opportunity for people to gain financial freedom. There are no limits on how much profit you can earn from this business. Beginners, as well as expert real estate investors, have the capability of building wealth and securing their financial futures. However, the business can become overly complicated, and there are certain basic principles that everyone must know to build a strong foundation for their investment activities.

Buying and Holding Real Estate

The first rule of real estate is that capital appreciation does not mean that you will get rich overnight. You will need to invest a lot of time and patience into the entire process before you start seeing substantial rewards. Being a successful real estate investor means that you must be farsighted and think about the long term. It does not mean that you will get instant rewards. You must buy and hold your property on a long-term basis. This means that you must always think ahead.

Investing in Positive Cash Flow Properties

Another vital aspect of real estate investing is to keep in mind that the key to growing your real estate business is to invest in positive cash flow properties and to stay away from negative gearing properties. Positive cash flow is essential to pay off the mortgage payments and all related expenses. Your rental income from the property should be enough that you can pay all the bills and avoid any major financial crunch. It is always wise to invest in a property that is attractive to tenants in areas where the rental demand is significantly high.

Number crunching is Vital

Real estate is not a business where you can make decisions on a whim. It is all about strategy. You must have a fully developed business plan and set achievable goals for yourself to implement your plan. You must also do your due diligence like conduct market research and thorough investment property analysis before making any major investments. Always make sure that the numbers add up before you spend your money. Thus, calculating critical financial metrics, estimating the return on investment, and understanding the cash return rates are a vital part of the business.

Here is a link to a Rental Property Calculator that makes it easy to map out potential return on investment scenarios. This Rental Property Calculator allows you to easily input expense and income values, and will also calculate possible ROI figures based on holding length, and expected return on the point of sale.

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Capitalizing on Prime Locations

To be a successful real estate investor, you must capitalize on prime locations. Location is a crucial factor that can determine how profitable your investment will be. You should never underestimate the importance of what a good location for your rental property can do for you. Yes, prime locations mean more expensive properties, but it also means much higher returns for you. They not only attract a large pool of tenants but also help you avoid tenant turnover, which can be costly and inconvenient. If you do your due diligence in this regard, you are sure to earn some extra money every month.

Being a Good Negotiator

Always be prepared and conduct your research, so you are aware of the current market, and no one will exploit you for their personal gains. You also need decent communication skills. These skills will help you throughout the process whether you are negotiating the price of the property you want to purchase, set the rental price for your property, or when you are negotiating lease terms with your tenants. Good negotiation skills can often make all the difference.

Staying Educated

Making money in real estate is not as simple as you may think. You need to maintain a steep learning curve so that you can capitalize on every opportunity that presents itself. Self-education is a necessary step. The more you know about the market or the tenant community, the better the investment decisions you will make. Having sound knowledge of the real estate industry, its challenges, and its trends, will help you set yourself apart from other investors. You will be able to find the most profitable properties that will be a great addition to your portfolio.

Building a real estate business is based on setting achievable but incremental goals that start with simple steps and leads to the long-term accumulation of wealth.

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