Becoming a property investor can be a powerful financial move. Depending on your goals, you can use property investments to generate monthly cash flow, focus on long-term profitability, or even use your property portfolio as a vehicle for retirement.
The problem is that it’s challenging to get started. If you don’t have much money, much knowledge, or much experience, you may feel like property investing is practically unattainable.
Of course, that’s not the case. But you may need some guidance to set some initial direction.
Property Investing: The Basics
Let’s start with some of the basics of property investing. There are many ways to invest in properties. For example, you can become a landlord and collect rent, capitalizing on a monthly profit. You can flip properties for a short-term profit. You can optimize for long-term profitability by investing in promising neighborhoods. Or you could invest indirectly via REITs.
In any case, if you want to be successful, you’ll need three things:
- Knowledge. You need to know what it takes to be successful in property investing and familiarize yourself with technical terms.
- Money. You need to pay for properties with your own money, investors’ money, loans, or some combination of these.
- Experience. You need experience and wisdom to make better investing and management decisions.
How can you get these to the point where you can get started?
Knowledge is your first stop. The more knowledge you have, the better prepared you’re going to be. You can collect knowledge by reading, listening to podcasts, and talking to experienced real estate investors.
Pay especially close attention to these areas:
- Laws. First, you need to understand that landlords are required to follow a number of laws, rules, and regulations—and those laws will vary depending on where you live. As a simple example, you may be required to have a specific number of smoke detectors on your property or arrange them in a specific way. Spend some time reviewing the laws in your city, or better yet, talk to a lawyer.
- Math. Get to know the profitability equations and other forms of math that will dictate your success. For example, how much can you afford to pay for a property that will generate $2,500 in monthly rent? When will you break even? How much of an emergency fund should you have set aside?
- Markets. The real estate market can be volatile (though usually not as volatile as the stock market). You’ll need to become familiar with local real estate markets, including the ebb and flow you can expect throughout the year.
Getting Access to Funds
Your next hurdle will be getting access to the funds you need to make property purchases. Ideally, you would just pay for properties outright, but this is rarely an accessible option for first-time investors.
- Savings. Start by saving up money for a down payment or other expenses. Cut your personal monthly expenses and consider establishing a secondary stream of income. If properly managed, you should be able to save a few thousand dollars, minimum.
- Loans. Do some research to figure out what kinds of loans you can qualify for. Are you able to secure a reasonable interest rate? How much of a down payment will you need to provide?
- Partnerships/investors. If you come up short, consider enlisting the help of a partner or an investor. You may have to forfeit some control or deal with personality clashes, but it will get you the access to capital you need to make your first investment.
The last ingredient is accumulating experience. There aren’t many shortcuts for this, but you can improve your odds of success with:
- Starting small. Don’t invest in an expensive or complicated property on your first go. Instead, start small. Work with a single-family property or something equally accessible, then gradually work your way to bigger and more complex investments.
- Learning from others’ experiences. You can’t accumulate years of experience in a single day, but you can benefit from years of others’ experiences in a similarly short timeframe. Talk to experienced investors and learn from their stories.
- Working with a mentor. Similarly, you can find and work with a mentor. Many experienced real estate investors are open to sharing their knowledge and wisdom with up-and-coming investors; you can find them by networking. Just make sure you remain respectful of their time.
If you’re just getting started as a property investor, it’s important to set reasonable expectations. You’re not going to become an overnight millionaire, and you probably can’t sniff out better deals than someone with a decade of experience under their belt. Remain patient and understand that this is a long-term strategy that will take time to fully understand and develop.