Legendary investor Charles Schwab recently told Barron’s the biggest mistake most novice investors make is procrastinating. They wait for market conditions to improve instead of preparing for fluctuations by investing the resources they already have. Schwab was talking about stock investments, but the same principle applies to real estate. The younger you start investing, the sooner you start earning. Of course, you’ll only make money in real estate if you have a sound strategy, as the last decade’s housing crisis illustrates. If you plan to invest in real estate, get started with these tips from experienced investors.
Smart real estate investing starts with educating yourself about how the business works. For a novice investor, start by learning from recognized authorities rather than relying on hype. TheBestColleges.org provides a convenient overview of the top-ranked university real estate programs, and the National Association of Realtors offers a comprehensive listing of various learning opportunities, from webinars to master’s degree programs.
Whatever real estate investment method or strategy you use, you will need a good credit rating to put your plan into action. When lenders evaluate a mortgage application, they factor in a number of variables, including your income, your debt, your credit history and your assets available for making a down payment. Keeping your debt balances low and paying your bills on time will improve how you score on these factors. Ideally, you should keep your borrowing within 10 percent of your credit limit, according to FICO.com.
If you’re currently carrying a high debt balance, look for ways you can pay down or off that debt and boost your credit before you begin your real estate ventures. If you receive regular payments from a structured settlement, consider selling your future payments to a company like J.G. Wentworth for a lump sum of cash now. You could then use that money to help pay down your debt.
Do your homework. A good investment rule of thumb: In order to put two offers in, you should first research 100 properties, New York real estate broker Patrick Lilly told amNewYork. Working with a broker can increase the efficiency of this process by lending you expertise and saving you time instead of you going it alone.
It can also be more efficient to partner with others when financing your investment. One option is to invest in a real estate investment trust, or REIT, which is a hedge fund that enables individuals to invest in profitable real estate on a large scale. You reap returns without buying the properties yourself. The SEC’s Investors.gov site provides guidelines for REIT investment best practices. Investment groups and co-ops are other pooled investment options.
