7 Real Estate Investing Tips for Beginners - Cash Flow Diaries (2024)

7 Real Estate Investing Tips for Beginners - Cash Flow Diaries (1)

If you’ve recently thought about investing in real estate to either round out your retirement portfolio or simply earn some extra cash, you’ve chosen a potentially great way to make extra money. Your monthly rental income can produce healthy personal cash flow and your property could appreciate in value over time. However, no investing strategy is as easy as it sounds, and if you’re just getting into the real estate game there may be a bit of a learning curve. Here are seven property-savvy strategies to get you started.

  1. Don’t Start Big
    There’s no need to start out by buying a 50-apartment complex or expanded real estate investment. Your best bet is to start small. Get yourself a single condo or house, which allows you to get your feet wet and explore what it’s like to be a landlord. You may find that you love it, and end up making more real estate purchases over the years. On the other hand, if you decide it’s not for you, it’s much better to find out after a single, small investment.
  2. Learn About Different Real Estate Investments
    Real estate investing does not fall under one umbrella. You can invest in residential, commercial, or industrial property, and there are alsoreal estate investment trusts (REITS), and other types of investments to consider. Take a look at them all to understand which is the right fit for your goals.

As you do this research, also think about the specific type of real estate you want to get into. You can buy a distressed property, fix it up, then sell it at a profit. You could also buy a property to rent that may need very little fixing up, or purchase a place that’s rent-ready. The decision is yours, and the options are endless.

  1. Keep Your Emotions in Check
    Investing in real estate can be an emotional thing. In many cases, you either love a property or you don’t, but from an objective standpoint, you should review it for its resale potential. It doesn’t matter if you love the floor plan or amenities, it all depends upon how much you can get for the property when the time comes to sell.
  2. Review Your Credit Score Now
    Oftentimes your ability to access financing in order to invest in real estate depends upon your credit score. You can review yours for free through websites likeCredit KarmaandQuizzle. If your score is low, work immediately on bringing it up by paying your monthly bills on time, lowering your credit card balances, and not opening up too many new lines of credit before you’re ready to sign on the dotted line.
  3. Investigate Banks, Realtors, and Mortgage Brokers
    Since you’re more than likely financing some of your own investments, start investigating banks. Although you should definitely look to your current institution, you may find better rates with the competition.

You also need to find properties and get mortgages, so look for a realtor and a mortgage broker. No two professionals are alike in these industries – just do your research before choosing one. Run the numbers with banks, and look for previous experience and customer service with realtors and mortgage brokers.

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  1. Have an Exit Strategy
    As with any other investment, the real estate market can go south virtually anytime. Even though things seem strong at the moment, we could face a downturn similar to what took place in 2008 and 2009. Acknowledge that the time may come when you need to cut your losses, and be ready to make a sale whenever the need arises.
  2. Reach Out to Investors in Your Area
    As a beginner, you should research online whenever possible and also reach out to local real estate investors who can give you more personalized advice and tips. One of the best ways is to use a website likeMeetup, which often lists local gatherings of real estate investors. Pick their brains for any questions you might have, along with other pointers they can provide.

Final Thoughts
Investing in real estate requires forethought, research, and discipline. It is not for the faint of heart. Plenty of folks lost a bundle of money when the housing market collapsed during our most recent economic crisis, but that’s not to say that you should be dissuaded from it. If you have the wherewithal to put in the required work, it is possible to make a lot of money. Just make sure you know what you’re getting into before you take the leap.

Have you recently gotten into real estate investing? What are your thoughts?

Tom Stewart writes about credit and debt, real estate, and the ins and outs of personal finance.

Check out these other posts:

  • How To Get More Than 4 Mortgages
  • How I Saved Over $14,000 Selling My House via For Sale By…
  • 6 Tips For Buying An Out Of State Rental Property
  • Top 5 Rental Property Exit Strategies
  • Disadvantages Of Buying Turnkey Rental Properties
  • Turnkey Interview: 10 Questions with David Hutson
7 Real Estate Investing Tips for Beginners - Cash Flow Diaries (2024)

FAQs

What is the 5 rule in real estate investing? ›

The first part of the 5% rule is Property Taxes, which are generally around 1% of the home's value. The second part of the 5% rule is Maintenance Costs, which are also around 1% of the home's value. Finally, the last part of the 5% rule is the Cost of Capital, which is assumed to be around 3% of the home's value.

What is the formula for cash flow in real estate? ›

How to accurately predict cash flow in real estate. In simple terms, cash flow = total income - total expenses. Although it looks like a relatively quick and simple formula, more goes into predicting income and expenses for single-family homes than you might expect.

What is a good cash flow for real estate? ›

A common benchmark used by real estate investors is to aim for a cash flow of at least 10% of the property's purchase price per year. For example, if a property is purchased for $200,000, the annual cash flow should be at least $20,000 ($1,667 per month).

What is the Sara method in real estate? ›

Basically, the S stands for secret savings account. The A stands for accelerated appreciation. The R stands for repair versus replace formula. And the A stands for appreciation. And this is what the ultra wealthy follow, step by step, can grow the.

What is the golden rule of real estate investing? ›

This rule calls for investors to put 20% down on properties and then get tenants whose rent payments cover the mortgage.

What is the 80% rule in real estate? ›

When it comes to insuring your home, the 80% rule is an important guideline to keep in mind. This rule suggests you should insure your home for at least 80% of its total replacement cost to avoid penalties for being underinsured.

What is the 1 rule in real estate? ›

The 1% rule of real estate investing measures the price of an investment property against the gross income it can generate. For a potential investment to pass the 1% rule, its monthly rent must equal at least 1% of the purchase price.

What is a good monthly cash flow for rental property? ›

How much cash flow is good for a rental property depends on the location, property type, investment strategy, and purchase price. Many real estate investors are happy with cash flow of $100-$200 per month per unit, but this should be viewed within the wider context of your portfolio and financial goals.

How to generate cash flow in real estate? ›

16 Ways To Create Cash Flow In Real Estate
  1. 1) Buy positive cash flow rentals. ...
  2. 2) Flip properties. ...
  3. 3) Charge a finder's fee on JV deals. ...
  4. 4) Offer a mortgage. ...
  5. 5) Become a mortgage agent. ...
  6. 6) Find deals for investors (aka Bird-Dogging) ...
  7. 7) Assigning deals to investors. ...
  8. 8) Become a licensed realtor.

What is AOM in real estate? ›

Assignment of Mortgage (AOM) Service.

What is the Brrrr method in real estate? ›

What is BRRRR, and what does it stand for? Letter by letter, BRRRR stands for “Buy, rehab, rent, refinance and repeat.” It's like flipping, but instead of selling the property after renovation, you rent it out with an eye on long-term appreciation.

How to learn how to invest in real estate? ›

If you want to start investing in real estate, it's a good idea to take some classes or enroll in a certificate program to help you understand the industry and market forces, learn how to build an investment strategy, and understand the financial aspects of investing in real estate.

What are the 5 pillars of real estate investing? ›

Allred credits a huge portion of his success to a deep understanding of the five pillars that create wealth in real estate — cash flow, market appreciation, tax benefits, principal reduction, and leverage.

What are the 5 R's of real estate? ›

This acronym stands for 'Buy-Renovate-Rent-Refinance-Repeat'. While this is simply one of many available investment options, this is the one I chose to focus my efforts on.

What is the 80 20 rule in real estate investing? ›

In the realm of real estate investment, the 80/20 rule, or Pareto Principle, is a potent tool for maximizing returns. It posits that a small fraction of actions—typically around 20%—drives a disproportionately large portion of results, often around 80%.

What are the 5 investment guidelines? ›

  • Invest early. Starting early is one of the best ways to build wealth. ...
  • Invest regularly. Investing often is just as important as starting early. ...
  • Invest enough. Achieving your long-term financial goals begins with saving enough today. ...
  • Have a plan. ...
  • Diversify your portfolio.

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