The fear of losing money can deter people from getting involved in real estate investing. Certainly it’s a valid concern. Real estate investment, like any form of investment, is speculative and carries a certain amount of financial risk. However, experienced investors develop strategies to minimize risk. They choose investments on which they will at least break even. New investors may not have the same expertise to draw upon, but they can still take practical steps to reduce their own risk.
Don’t Quit Your Job
It can be difficult to juggle full time employment and real estate investing. Nevertheless, don’t be in a hurry to quit your job. Wait until your investment profits at least equal your salary. The security of a steady income is important to most people, especially those with a family. With a job as backup, you’ll be able to sleep better at night. More importantly, you won’t make foolish deals out of panic or financial need. In addition, if you don’t have a job or you are self-employed, you may have trouble getting financing for real estate transactions.
Find a Mentor
This is a tried and true way to get safely started in real estate investing. Find a successful investor who is willing to guide you. You may need to pay your mentor a fee, but it’ll be worth it. Your mentor can teach you how to interpret the market and how to avoid getting in over your head. With a mentor’s advice and direction, you’ll bypass the trial and error process that causes so many new investors to lose money and become discouraged.
Get a Good Accountant
Buying and selling real estate has so many tax implications that any serious investor should have professional advice. An accountant who specializes in real estate tax law can show you ways to earn more profit or avoid incurring costly penalties. Make sure that the accountant you select has years of experience in this area.
Don’t Overcapitalize
A common mistake of new investors is to spend money that will not be recovered when the property is sold. For example, rehabbing and reselling houses is an investment method that may seem easy and profitable. Sadly, many people don’t fully analyze the state of the real estate market and all the expenses involved in fixing up the property. They put a lot of money and heart into repairs and improvements. Too much, in fact. They end up overcapitalizing and are unable to resell the house at a high enough price to make a profit.
Don’t Rely on the Market
Pay attention to the movements of the real estate market, but don’t depend on market appreciation to make an investment profitable. The real estate market is influenced by factors beyond your control – interest rates, population growth, major employers moving into or out of the area, etc. Therefore, the cash flow must work under current conditions and not lead to a loss if the market takes a downturn. A smart investor will always have a plan for the worst case scenario.
Do it with a Group
Look for opportunities to work with other investors. Most cities have real estate investment associations and clubs. There are even online associations you can join. Real estate clubs are a popular way for new and not-so-new investors to start investing at levels they can afford. Working with others, you’ll gain valuable experience and boost your confidence. Also try developing your networking skills and seek out joint ventures where you and your partner can split the financial commitment.
