This article will acquaint anyone just getting started in real estate investing with some basic elements about investing in rental properties. It’s not rocket science, but it does cover six real estate investing tips beginners can use to launch their real estate investing career and hit the ground running.

In this first installment, Starter’s Guide for Real Estate Investing Beginners, Part 1, we’ll discuss the first three tips.

1. Develop the Correct Attitude

To stand a chance of succeeding at real estate investing, foremost, you must understand that real estate investment is a business, and from that very moment you decide you want to jump in and buy your first income property, you become the CEO of that business.

As your first order of business, then, it’s crucial to develop the correct mind-set about investment real estate and be able to make this distinction between buying a home and investing in real estate:

You buy a home to live and raise a family. You buy real estate investment property to pay for the home, live comfortably, and raise your family in style.

Here’s the problem.

Beginning investors too often set out to purchase income property incorrectly thinking that investment properties are a home. That it must provide good curb appeal, exciting amenities, desirable floor plans, and a desirable area to live. This is not the case with income-producing property, though. Remember, real estate investing is a business, and the object it to make money.

Unfortunately, real estate investors that fail to make this distinction between home and investment can end up suffering unfavorable results.

Some, for instance, wrongly buy an investment property mistaking beauty for performance and then never make a dime from their investment, or even worse, they actually lose money on the investment. Conversely, some miss opportunities to make real money because an income property lacks luster. They walk away because the thought of living in the rental property is unimaginable, and because the property isn’t beautiful enough, they make the decision not to invest on no other grounds but the fact that they wouldn’t want to live in the property themselves.

Beginning real estate investors must bear in mind that investing in real estate is not to provide you with a place to live; chances are that you will never live inside one of the units you purchase. You are buying investment real estate to make money, period.

As one very successful real estate investor once said, “Only women are beautiful, what are the numbers?” You will not succeed at real estate investing until you acknowledge that beauty is only skin-deep and what counts most is the property’s financial performance.

2. Develop Meaningful Objectives

A meaningful set of objectives that helps frame your investment strategy is one of the most important elements of successful investing. Just be realistic. We may all desire to make millions of dollars from real estate investing, but entertaining that fantasy is not the same as expressing a specific goal or goals and a method on how to achieve it. Here are some suggestions.

• How much cash are you willing to invest comfortably?
• What rate of return are you hoping to generate?
• How long do you plan to own the property?
• What amount of your own effort can you afford to contribute to the day-to-day operation of running the property? And so on…

3. Develop Market Research

If you’re new to real estate investing, we’ll assume that you know very little about prices for rental properties in your local market. If true, that you haven’t had much exposure to what’s been selling, then you must do some research. Before you take too many steps forward or make any investment decision, learn as much as possible about local income property values, rental rents, and occupancy rates. The more you know about investment real estate prices and trends in your area, the better prepared you are to recognize a good (or bad) deal when you see it. Here are some helpful resources you might want to consider.

• A local appraiser
• The county tax assessor
• A qualified local real estate professional
• A local property management company

To be Continued

In our next installment, we’ll cover three more real estate investment tips you don’t want to miss if you’re a new real estate investor about to start real estate investing.

Since the object to real estate investing is to make money, it’s important that real estate investors understand some basic information about investment property market value.

Obviously, the best real estate investment is being able to buy a rental income property you can make money on when you buy, as well as when you sell. In other words, you buy properties at or (preferably) below their market values. When you do this, you reduce risk and increase your chance for great returns.

Okay, but this tactic requires that you know what the term “market value” really means.

What is Market Value?

There are essentially three terms used in real estate to denote property value such as “appraised value,” “sales price,” and “market value”. These do not all mean the same thing, and it’s important for the real estate investor to understand the distinction.

• “Appraised value” could refer to an insurance appraisal, a property tax appraisal, an estate tax appraisal, or a market value appraisal.
• “Sales price” merely refers to the nominal price at which a property has sold. That sales price could equal, exceed, or fall below market value.
• “Market value” equals sales price when a property is sold according to five conditions: (1) Buyers and sellers are typically motivated (not acting under duress), (2) buyers and sellers are well informed about the market (they negotiate in their own interest), (3) the marketing period permits reasonable exposure of the property to potential buyers, (4) no unusually favorable or unfavorable terms of financing, and (5) neither the sellers nor the buyers offer any extraordinary concessions.

Let’s consider an illustration.

Say that two properties recently sold for $500,000 and $510,000 in a part of town where you’re interested in buying. Each of these was a four unit building consisting of two-bedroom, one bath units with around 840 square feet each.

Okay, so you locate a nearby four-plex of similar size and features priced at $475,000 and consider it bargain (below market value), but is it? It appears to be, but before you draw a conclusion, investigate the terms and conditions of the other two sales.

We’ll make up a couple of scenarios to show you why the so-called “market value” of the previously sold investment real estate might be flawed.

• The sellers of one of the four-plexes carried back a nothing down, 5 percent, 30-year mortgage for their buyers (i.e., favorable financing)
• One of the buyers purchased merely because it seemed like a steal to their real estate market (i.e., an uninformed buyer)
• The sellers of one of the four-plexes paid all of their buyer’s closing costs (i.e., extraordinary sales concessions)

Sales Price Might Not Equal Market Value

When you invest in real estate, it’s not enough to learn the prices at which other similar rental properties have sold. Also, learn whether the buyers or sellers acted with full market knowledge, gave any unusually favorable terms of financing, bought (or sold) in a hurry, or made concessions that pushed the sales price up or pulled it down. Remember, faulty sales price information can make bad deals look good (or vice versa).

In an effort to keep ProAPOD real estate investing software customers and subscribers to this real estate investing blog informed, we have created a new page on our ProAPOD website filled with real estate industry links to helpful real estate resources.

Here is what we’ve included thus far.

Real Estate News
Inman News
RIS Media
Realty Times
Real Estate Forum
…and MORE

Trade Associations
American Real Estate Society
National Association of Realtors
California Association of Realtors
Illinois Association of Realtors
…and MORE

Real Estate Research & Education
Real Estate Center at Texas A&M
Council of Residential Specialists
…and MORE

Loan Underwriters
Fannie Mae
Freddie Mac
…and MORE

Real Estate Consumer News
Real Estate Journal from Wall Street Journal
New York Times Real Estate
…and MORE

Government Sites
Department of Housing and Urban Development
Federal Housing Authority
Office of Federal Housing Enterprise Oversight
Federal Cititizens Information Center on Housing
Federal Home Sales
…and MORE

Real Estate Information
Wikipedia Article on Real Estate
DMOZ Open Directory Real Estate
…and MORE

You can navigate to this page from our home page at ProAPOD Real Estate Investment Software, then clicking Real Estate Industry Links at the bottom of the page. Please feel free to suggest others, and report back to me if you find any broken links.