The Dos and Don’ts of Real Estate Investing

Real estate investing can be a flexible and rewarding financial decision with long-term benefits. However, not all properties will bring you success. You’re going to make mistakes before you can secure financial freedom. While getting started in real estate can be intimidating, the right approach can make it quickly worthwhile. To start, you should be familiar with what you generally should and shouldn’t do in the real estate investing world.

Do Market Research

You can’t invest wisely when you haven’t done your due diligence. You need to understand how the real estate market is behaving in not just the location you’re eyeing, but the country in general. In some places, it is much harder to get a return on your investment than in others. Some areas aren’t as attractive for rental income. Make sure you know the latest market statistics, interest rates, and average rent as a minimum before you start considering a particular location or property.

Don’t Rush Into Multiple Properties

Expanding your investment portfolio may seem like an easy way to make as much real estate income as possible, but it can quickly backfire. Taking on more properties that you can manage can easily put you into too much debt that you can’t pay off, lowering your overall investment returns and sullying your professional reputation. Take it slow, especially when you’re first starting. Once you get the handle on managing one property well, you can consider branching out.

Do Thorough Inspections

An investment property may look like an excellent deal on paper and even in person, but many buildings show more subtle signs of wear and tear. You don’t want to take on unexpected costs—professional property inspections are a must to ensure you know what you’re getting into. It’s not unusual to take on a property that needs repairs, but you don’t want to be surprised. Make sure you’re getting properties inspected by licensed and trained professionals—verify their credentials whenever possible.

Inspectors

Similar to plumbers, not all states require a license for a home inspector, such as California or Colorado. Home inspectors are tasked with walking through a home, verifying everything is in operational order, and finding repairs that are needed before the home purchase is complete. While they will be highly experienced in most cases, you’ll want to hire some specialists to provide a more thorough opinion. 

Electricians

Consider hiring at least one electrician to thoroughly inspect the property’s wiring, lighting, and other electrical systems. Rewiring a property can cost thousands of dollars, so you’ll want to make sure the electrician is licensed or comes from a licensed company. Licensing requirements vary from state to state, but usually require passing an exam and demonstrating work or school experience. In California, there is only one lengthy electrical exam per license category. The South Carolina electrical license test is two parts: business and electrical. Research licensing requirements in your area to determine if the electricians you hire are qualified.

Plumbers

Another costly expense in a property is the plumbing. Leaks can lead to water damage that will set you back immensely, thousands of dollars at minimum. Plumbers that you hire will generally be licensed unless you reside in states like Pennsylvania, Kansas, or New York. Still, you will need to verify experience and education outside of a license; inexperienced tradespeople can make property damage worse.

Don’t Buy Into a Money Pit

You should expect to sink some money into repairing a rental property—many ideal homes require a small amount of maintenance to get going, and you’re going to have to continue to improve the property as you earn income. However, don’t bite off more than you can chew.

If a home needs an extensive rework that isn’t worth the price you paid for it, you’re better off passing on that particular property. A money pit can be frustrating to get out of without major setbacks and expenses. Multiple major systemic or structural failures can indicate a money pit—rewiring, replumbing, and installing new air ducts all at once are usually too expensive for just one property.

Do Set Realistic, Long-Term Goals

Investing in real estate is a long-term gig. Even if you only buy one property, you have to continue to maintain and nurture it in order to make income off of it. Make sure you’re in this for the long haul and make specific, long-term goals. How much money do you want to make? How many properties will you consider managing at once? Will this become your full-time career? Answering questions like those can help you create some solid goals to make investing much easier.

Don’t Hold Onto Bad Investments

While real estate is a long-term priority, it doesn’t mean you should hold onto all of your properties for the long term. A property may not be worth keeping if it’s not making enough money despite significant upgrades and improvements. Some markets may be too competitive to stay in. Don’t be afraid to let go of a bad investment; they happen to everyone at some point.

Do Expect the Unexpected

When it comes to real estate, every element can be volatile; interest rates can skyrocket, emergency repairs can set you back thousands overnight, and the market can become too competitive for a solid return. Be as prepared as possible for emergencies and setbacks; create a plan of action for as many of them as you can. The more prepared you are for the unexpected, the less it will hurt you.

Conclusion

Real estate investing is a lot of work, and it can be very intimidating for beginners and experts alike. Preparation is key to eliminating surprises and setbacks, especially financially. Do diligent market research, and don’t take on too many properties at once. Hire licensed and experienced professionals who can ensure your investment is worthwhile. Don’t get started without creating long-term goals.