My family has been investing in real estate for several decades. My father made money and he lost money. I’ve put most of my investments into the software space, but vis-a-vis family, I've been really fortunate to get an inside look at what it takes to succeed as a property investor. All that experience has made me realize that you want to begin slow, small, and economical. The same way you’d build a software company.
Every first time property investor gets enthusiastic about investing and watching their capital grow. So they go and invest a whole great deal of money, they request their family and friends to provide them money, or they refinance the home in which they reside. They go out and buy a low quality, broken property attempting to replicate the TV shows they see on HGTV. Don’t be that person. Bad move, bad idea. So here are 3 ways to find success as a first time property investor.
1. Opt for an inexpensive neighborhood.
Before looking at the individual home, look at the neighborhood. Locate a place, a C-class or B neighborhood, even if it is a bit rough around the edges. Remember, the more money you spend, the higher the risk you'll have. Inexpensive neighborhoods are lower risk and good place for a first time property investor. Dropping a high amount of your liquidity on an expensive home increases your risk since the probability of you losing rather than performing well on that trade is large. You won’t win just being lucky, you need to play it smart. You can also reduce risk by co-buying into your first investment with family and friends to reduce your risk exposure.
2. Do not overload yourself with work.
If you’re a first time investor, you probably have a business or full time job that you have to attend to. Don’t let your first property investment overload your life with work and stress. Look for the properties that are in good condition and can use polish and touchup to boost their rental appeal. The key here is not to overload yourself. Again, start small. Locate a place, purchase a your investment property, and be certain it doesn't require much maintenance work.
Forget about construction, foundation walls renovations, plumbing rehabs and roofing rebuilds. You need to obtain a home that doesn't require that much work. Think in terms of design, paint, and touchups as the maximum you’ll do. In the beginning, you should invest in a home needing a cosmetic rehabilitation -- paint, carpeting, flooring, etc.
3. Negotiate, negotiate, negotiate.
Many first time investors will make quick cash deals to close and then spend weeks renovating. Sellers get used to these quick cash purchases, but that may not be the best method for a first time investor. You don’t want to put yourself out with the risk of a rehab or renovation. Likewise, take this opportunity to learn the ropes of negotiation. Take your time sourcing a good deal and buy a home that will add value and time. Time is your most valuable resource, don’t waste in on a rehab full of risk. Learn how to negotiate.
Start slow, start small, negotiate, and start economical. Be certain you purchase below market value. Take the time to negotiate. Learn the ropes.