Real Estate Investing for the First Timer
December 17th, 2009 | 
Author: Real Estate Investing for the First Timer
You have probably read all the information on the market as it relates to real estate investing and are well aware that many of the world’s millionaires made their fortunes in the real estate market. As a result I’m sure that you feel ready to throw your hat into the ring and begin your own real estate portfolio. There is certainly nothing wrong with this as an investment strategy though there are many wrong ways in which an investor can go about the process.
Flipping properties is my field of experience and a good deal of what will be discussed here will relate to flipping properties though some of the information can be crossed over into rental properties and other types of real estate investment. Even personal property can be a real estate investment. Real estate is one of the few forms of investment in today’s society in which you can actually see the changes as they are occurring.
It is truly amazing to watch a property that was once neglected and in a state of disrepair suddenly spark back to life right before your very eyes. There is a lot of work involved in this process though and this is often overlooked. Much like labor in light of birth. The pains are quickly forgotten when looking into the face of the outcome.
Keep these things in mind for your first time and you should be well on your way to future success. You should also realize that the first few investments are learning experiences more than anything else. If you do not achieve the success you were hoping for (or success to a lesser degree than hoped) you should not give up on the dream all together simply learn from the mistakes you will make along the way as well as the mistakes that others have made.
Real estate investing is not an exact science. There is no formula in this business that guarantees success. Even seasoned professionals will find the occasional bump in the road even on a property for which they had high expectations. Stuff happens along the way that cost money, delay the project, or set the project back. These things are stumbling blocks no doubt but should not be allowed to derail the entire project. When these things happens go back to your original plan, reassess the situation and create a new plan with the necessary adjustments in mind. The key is in sticking to a plan the entire time and never throwing the plan out the window and flying by the seat of your pants.
Your plan will be your lifeline throughout the project. You need to have a plan and a budget in writing. One great rule of thumb is that you set aside double the amount of money you plan for in your budget. This gives you a bit of a safety net for the inevitable things that will go wrong. Things will go wrong on almost every flip you encounter. Even the seasoned professionals that have television shows about their flipping efforts encounter problems in almost every single flip, rehab, or renovation.
For your first few investment purchases it is recommended that you purchase properties that need little more than minor cosmetic repair rather than complete rehabs or renovations. This allows you to get your feet wet without the incredible risk of going off the deep end mentally, emotionally, and financially. These properties represent lower profits but also lower risk. They also allow you to gain valuable experience and raise a little capital in which to invest in properties requiring more extensive work in the future.
Keep your eye on the carrot at the end of the project. Far too many would be property investors give up just before they reach the point of true profitability. The goal is the profit at the end of the project.
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Posted in Property Fortunes
Thanks for the post. I am an Real Estate investor but I deal only with rentals. I started with a long term goal of having a specific amount of passive income in 15 years. I am now looking at doing a flip to raise some cash for my next 2 rentals. I have a few question that hopefully you can answer.
1. Do I need to hold the property for a specific amount of time before I can sell it? I heard many banks will not lend money to buyers if the house has not been owned for more than 6 monhts (by the current owner).
2. What % of my profit can I expect to pay in taxes? Are profits from flipping taxed at a certain tax rate or are they taxed at my personal marginal tax?
Thanks for your help. Daniel
Real estate investing seems to be a risky thing to do, although still worth considering. I know a few couples who invested in real estate and have gone bankrupt recently with the recession.
I read in an article that besides money and people (input), we also need trust to grow our business. Is it true? How can we keep trust when we meet many new people and we know that everyone just wants to benefit? Well, as written in the article, trust has been proven as an essential tool to keep thing going well. Remember how financial crisis was becoming severe and severe in Asian countries because the citizens didn’t trust that their governments would be able to accommodate their needs and safety? See the opposite happened at developed countries? People do business with you mostly because they trust you, that you will do your role well. And you do the same to the others, and your business can grow.
Sound advice, so many people jump in the deep end without testing the water first.
Thanks for the great info on real estate investing.
Do you recommend people to invest right now? with the recession? Some say that right now is the time to buy and not the time to sell. What do think about this?
While there is always a market for ‘flipping’, I would suggest that a first timer lean towards rental (investment properties) in order to create positive cash flow and acquire additional properties using the equity of the investment properties. While Flips are always there, they are not as easy to find as one might think, and can be a very risky strategy for a novice investor. However, if you are set on flipping a property for a quick profit keep this in mind- the profit from a flip is made when you buy- so the numbers have to work.
So far my investments on real estate have grown considerably. My tip for first time investors would be to learn more on investing in general and as well as the details about real estate investing. Try to read a lot, understand the opportunities and always ask the opinion of experts
Real Estate is business. Ever business has risks. I am just thinking to myself how quickly the risks have increased over the past few years. Economy where are you?
Your post made me reminisce on the first day I invested on a property. It was an experienced that is worth looking back. People are lucky because the internet is available now to help them in so many ways. Just like your site, wanting to help people.
Great Article. I am on my way to finally being a first time buyer and this article has given me some clarity. Thanks Much.