Branching out into real estate investment is an exciting opportunity, and if done thoughtfully, can turn a tidy profit for investors. However, this opportunity also comes with risks that can be financially detrimental.
Investing in real estate requires research, a strong knowledge base and careful consideration before jumping into it. To that end, we asked the members of Forbes Real Estate Council to share their best advice for those looking for their first investment property. Their best answers are below.
Forbes Real Estate Council members detail how first-time investors can their first investment properties.
Photos courtesy of the individual members.
1. Do Your Due Diligence
Know your market, engage in thorough underwriting and acquire the property at the best possible basis. Make sure all legal documents are carefully drafted and agreed upon. Unless you are already an experienced real estate professional, have a strong mentor relationship in place to discuss your investment and business plan. – Anne Keshen, RMT Capital Management
2. Make Sure You Like It
Make sure you like going to the property, like the area and have faith in the area’s growth. If you dread visiting the property, it will impact how you manage it. If renting, be patient with tenant selection. Don’t accept the first person willing to sign a lease. Better to wait on a perfect tenant than costly turns! – Dustin Johns, Resource Realty Group
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3. Choose An Area You Know Well
For starters, invest in an area you know well and preferably one that is within an hour’s drive of your home too. Countless investments turned into nightmares when areas that looked good on paper turned out to be anything but. By investing close to home, you can more easily get to know an area and be responsive on short notice when your immediate attention is required on site. – Ronnie Miranda, NewQuest Properties
4. Go Beyond Your Gut Feeling
The old adage is location, location, location! And for some reason that invariably somehow translates into someone’s backyard. There are certain metrics that you need to look for to determine if the market you are buying in is a good one and it’s not your gut. Job growth, population growth over the last five years, median household income and crime rates are just a few. Use data to your advantage. – Amy Tiemann, TM1 Properties
5. Know Your Buying Criteria And Exit Strategy
Determine your buying criteria and exit strategy ahead of time. Will this be a long-term hold? A retail flip? A wholesale deal? Once you establish your criteria, you can filter those deals into an appropriate exit strategy that fits in with your overall business model. – Melissa Johnson, webuyhousessanantoniotx.com
6. Understand Everything You Can About The Property
The first investment property is like buying a company. You need to know where it is (location), what it can do in terms of income and expenses (tax, insurance, legal help, tenants, repairs), what affects it (growing community, commercial development, support facilities) and who is going to use it. This is the reason most people buy assets in their own areas. Simply partner with a successful partner. – Chander Mishra, Accel Equity Group LLC
7. Don’t Financially Overextend Yourself
Abandoning your day job and becoming a full-time real estate investor is appealing, but it has its pitfalls. It’s imperative that you do not financially overextend yourself. Make sure you have sufficient cash reserves post-closing to cover unforeseen vacancies and expenses. Purchasing a property with a large number of units will make a tenant that stops paying rent or leaves less painful. – Noah Grayson, South End Capital Corporation
8. Partner With An Experienced Real Estate Investor
It might be wise to partner with someone who has experience for your first deal. Learn everything you can from them. The returns might be lower, but your risk is also decreased when you have someone guiding you through the process. – Mike Hambright, FlipNerd.com
9. Don’t Get Stuck On A Decision
Don’t get stuck in analysis paralysis. These days, there are tons of resources to teach you the “right” way to invest in real estate. It can be easy to feel overwhelmed. Start by figuring out your own investing goals, set a realistic target for your first investment property and pull the trigger! You’ll learn much more from doing your own deal than from reading about it from the sidelines. – Annie Dickerson, Goodegg Investments
10. Educate Yourself
Educate yourself on the positives and negatives of investments and ask a lot of questions of those around you that are the “experts.” Really do your homework and understand what you are getting into to have the most success in your investment opportunity. – Galit Ventura-Rozen, Commercial Professionals, Inc
11. Know What’s Best For Your Location
Determine which property investments are best for your location. Some areas are stronger for buy and hold rentals, fix and flips, turnkey investments or long-term appreciation. Approach your first investment property with a business mindset by calculating monthly property expenses, after-repair value and appreciation. These calculations find which property decision is the most profitable for you. – Chuck Hattemer, Onerent
12. Be Willing To Move Quickly
Opportunities don’t go away; they go to someone else. Time is definitely of the essence. I’ve seen so many new investors regret missing out on great opportunities after overthinking it or trying to wait for the “perfect” deal. By the time they decide they want it, it is gone. Investing is inherently risky so you need to understand your risk tolerance and how you would mitigate the risk(s). – Catherine Kuo, Elite Homes | Christie’s International Real Estate
13. Hire An Experienced Realtor
Hire a realtor that specializes in investment properties. Every income-producing investment property should be purchased based on a financial analysis. The financial analysis always starts with the owner’s goals. These realtors help define the owner’s goals, analyze every deal and often help sell an owners’ current assets so they can acquire ones that actually produce income. – Karen Hatcher, Sovereign Realty & Management LLC