Before you pull out the salsa and chips to celebrate your new real estate investment enterprise, perhaps you should first decide whether or not you want to make money at real estate investing.
A totally rhetorical statement, of course, but please bear with me.
Yes, you can certainly make money at real estate investing with some preparation – in fact with better preparation you might even make a lot of money.
But investing in real estate is a two-edged sword. On the one side it can certainly make you a bag full of money, while on the other side it can also cause you to lose a bag full of money (and then some) just as quickly.
Fair enough. So now allow me to explain what I’m suggesting.
Foremost, understand that there is no such thing as a “no-brainer” with any real estate investment. If it were that easy than we would all be engaged in real estate investment and getting rich in the process. Unfortunately, it does require some insight. Real estate investing is about the numbers, and the most successful real estate investors have learned how to play by the numbers.
In this article, I would like to suggest five things you can do to prepare for your first real estate investment. There’s no silver bullet here – no one thing that guarantees your investment success – but they aren’t meant to be. This is simply intended to get those of you who are novice real estate investors started on the right foot with your real estate investing venture.
- Get familiar with the nuances. You’ll be working with rental income, vacancy rate, operating expenses and cash flows. Try to understand how they effect a rental property’s financial performance and your profitability. I would suggest that you get hold of an Annual Property Operating Data (APOD) and examine it. This is an easy-to-understand report that will give you a general idea of cash inflows and outflows.
- Acquaint yourself with some reports and returns. You will be encountering a host of rates of returns and reports like cap rate, cash-on-cash return, internal rate of return, Annual Property Operating Data (APOD), Proforma Income Statement. Become somewhat familiar what they are and mean. You can find a variety of real estate articles on the subject posted throughout the web (like on this site, for instance).
- Learn some formulas. Bear in mind that you aren’t required to become an expert, but at least understand the formulas to some of the more popular returns and measures like cap rate, gross rent multiplier, cash on cash return so you understand how to compute them. This will help you understand their significance and what role they should play in your investment decisions.
- Obtain a software solution. Having your own real estate investment software gives you the ability to crunch your own numbers. This way you don’t have to rely on what others tell you, and you’re given more control over your investment decisions. Plus, by virtue of using the software, you get a better handle on the process.
- Work with a qualified agent. Interview several local real estate agents. This is important because you want someone who is aggressive, trustworthy (will look out for your financial interests), and understands real estate investing. Don’t settle for less. You want to know that you’re teamed up with an agent that wants to make you money as well as a commission.
Remember, the more preparation you do before investing in real estate, the better your chances are to make money.
Here’s to your success.
So You Know
ProAPOD does provide a real estate investor software solution for novice investors looking to conduct a real estate analysis as well as learn the formulas.
