As the last few years have shown us, real estate can be a tricky industry to make money in, and some of the people who thought they had it all have been revealed to in fact have not very much at all.
That being said, savvy real estate investors can create vast wealth and build a life-long fortune.
7 Real Estate Secrets of Self Made Millionaires
The most educated of investors have remained self-made millionaires through the ups and down, and these are the lessons they can teach us.
What’s in your portfolio right now?
Whatever it is, your next purchase should be something else! Diversification is the key to success, and though we hear about the wunderkinds making money off of one amazing investment, more investors make their fortunes from a little bit of this and that.
Investing in real estate provides a hedge against inflation and low “correlation” to stocks. In laymen’s terms, real estate investments may rise when stocks drop.
2. Take Risks
You must be willing to take risks. If you are not willing to put yourself out there, you will get nothing in return.
With that being said, it’s critical to study your investment and not rely solely on trends and intuition. There are a number of common mistakes new investors make assessing risk and make making investments:
- Not determining your Time Need: You need to address cash flow, tax benefits, capital appreciation and pride of ownership before you make a commitment to invest in real estate. You may want to consider hiring a real estate professional to evaluate all your needs prior to taking the plunge. This step will help you significantly decrease your property investment risk.
- Failure to conduct a thorough inspection: It’s important to leave no stone unturned. You may even want to consider hiring a professional inspector. A professional inspector can help you avoid costly mistakes. Don’t overlook anything!
- Forgetting you are buying a Business: You must remember that this is a “hands on” business. You can create vast wealth with investment properties, but you may also potentially be faced with some difficult decisions. Evictions, re-investments, and time management are but a few of the major decisions you will be making. Treating your real estate investments as a business will help negate much of the risk real estate investments carry with them.
- Don’t spend positive cash flow: The majority of successful investors own their properties free and clear. It’s wise to re-invest your cash flow back into the property payment. This will minimize your debt load and will maximize your equity.
3. Explore New Areas
Even within the realm of residential properties, there is room for you to wander quite far afield. People are everywhere, and they all need to live somewhere. Find new areas to buy in, adding more security and more interest to your portfolio.
This strategy is often over-looked by new real estate investors, but following this tip can pay big dividends.
4. Lease with Option to Buy
In many cases, this is one of the best ways to get a risk-free evaluation of the property before investing. This may always be your best option if your credit rating is less than stellar.
Before settling on this option you must determine if leasing with the option to buy is a good fit for you. Can you afford the money option? This fee is required for the lease option contract to be valid and generally falls anywhere from 3% to 5% of the total purchase price.
The second question you must ask yourself before committing to a lease option is – will you be able to secure financing at the end of the lease term?
Finally and most obviously, can you afford the monthly payments on the lease? If you answered yes to these three questions, leasing with an option to buy is a viable option you should consider.
5. Fix and Flip
There are some amazing homes out there that just need a little bit of tender, loving care. Fixing a house and throwing it back on the market is perfect for the investor who loves to get their hands into the mix.
Sure, the logistics can get a bit complex, but once you gain a firm understanding of how flipping works, it becomes instantly repeatable.
Begin your search for homes by sifting through the Multiple Listing Service (MLS) database. This database lists all houses for sale regardless of whether under a listing contract by that agent’s brokerage or by some alternate broker.
6. Short Sales
A short sale is essentially a bank trying to cut its losses, and you will find that you can win big. That being said, this investing strategy can pose a few difficulties to newbie investors.
For one, there is often big competition from experienced short sale investors. Thankfully, you can negate some of the competition by affiliating yourself with mentors and bird dogs who train you and help you find leads.
If you prefer to strike out on your own you can search public records for short sales. Just a few of the places you can obtain a list of short sales includes the county recorder’s office, title companies and local or national providers.
Alternately, you can search online at sites like foreclosure.com.
7. Stick with Cash
This last secret may seem obvious on the surface, but it may be the most practical tip included on the list.
If you want to keep money in your pocket, do everything in cash. If you don’t have the money that minute, it’s too expensive. This is a good way to keep your money on you instead of flowing out the door.
When you want to make your first million in real estate, there is no better time to start than now.
Take a moment to consider the field and what you need from it before you invest. A little bit of foresight and industry analysis now can make a huge difference later on.