Real Estate Investing
There are three major types of real estate investment: Long-term rental investing, flip investing or “flipping”, and REIT or private lending. This quick overview isn’t going to really be specific to any of those, but is instead going to be more of a general overview and some basic ideas and tips when considering moving in to real estate investment. Stay-tuned over the next few weeks and I will be adding much more in-depth guides on both the rental and flipping forms of real estate investment. My real-world and practical knowledge of REIT and private-money lending is currently not to the level where I would feel comfortable offering any advice on it.
The first thing to consider is how you will be taking ownership of the property. It is highly recommended that you never purchase real estate investments in your own name. If the investment flops or any of your partners fail to fulfill agreements made, then having invested as part of an LLC (Limited Liability Company), LP (Limited Partnership), or even a corporation protects your personal assets from being seized or becoming collateral. Essentially the worst that could happen is you would lose the money that you invested and nothing more. Your 401(k), retirement, and personal accounts would all be untouchable.
Secondly you must understand and have superior knowledge of the market that you are looking to invest in. Here in Lake Tahoe you need to know that the area relies on tourism and has tourist “seasons”. You need to know that snow some years can be quite heavy and the winter season can last a long time. There are local Tahoe government agencies which have certain improvement, purchasing, and use restrictions on various properties. The values of two like investments can differ greatly based on area. A three bedroom two bath house in the Sierra Tract could cost considerably less than the same type of house in the Tahoe Keys.
Stay Cautious, Stay Liquid
Make sure that you understand the actual cost and cash flow implications of your potential investments. To maintain leverage you also need to know what the local, state, and federal tax implications are of your investments. Know how much an investment will cost to hang on to or to sell prematurely. In addition to that, consider if this is the best place for your money to be. Could you make more by investing in something else? Always ask yourselves these questions. If you are constantly checking yourself then you are less likely to jump into an investment that will make you lose. If at any time during a deal it looks like your ROI(Return On Investment) becomes less than acceptable, find a way out! Don’t stay in it because you have become emotionally attached in some way. Proceed with caution and only make choices that make financial sense.
Have a Plan and Exit Strategy
Know exactly how you plan on making money when purchasing your investment property. Plan out when each step of your investment should begin and end, and always have a backup plan in case your first course of action fails. Investing in real estate is a full time job in and of itself. Realize that you will get out of it what you put in. If you are taking the time to plan and calculate, you will be rewarded.
Ask Questions, Become Informed
Always keep learning and talking about what you are doing. You’ll be surprised the people you will meet who have already done what you’re starting and can have some fantastic information for you. You may even meet potential new partners. Find any media you can on real estate investing as well. Search google and amazon. Try to find investor clubs or meetings that you can join. Talk to a seasoned real estate agent (me) and in many cases they will have investor contacts. The point here is: Never stop learning.