I want you to understand that real estate investing is simple; however, I didn’t say it’s easy. Is the income from the property greater than the expenses? That’s the key question and you can use basic math to figure it out. I want you to take three things away from this post:
- You can do it
- The process is simple but not easy
- You’ll need some capital
You Can Do It
As I mentioned before, this business isn’t rocket science. You can do it. For the purposes of this post let’s look at the most basic form of real estate investing, the rental house. I believe the following three steps increase your chances of success as a landlord.
- Choose a strategy and educate yourself- Are you in it for cashflow (my favorite), appreciation, equity, or do you just need a little more frustration in your life?
- Develop a screening process – You need a screening process for properties and for tenants. You should develop criteria for the kind of property you’re looking for. This will help you rate and sort properties efficiently. Location, property age, condition, value and return on investment should all be considered. You should also create a screening process for prospective tenants. The ability to find and keep good tenants is the difference between success and failure.
- Start small – I know some real estate gurus will say to try to acquire many units quickly but I think it’s prudent to start small and learn the business before you jump in with both feet. Like anything else, some will be better at real estate investing than others. Best to find out if you’re a good fit before you acquire too many units.
Simple Not Easy
There are many real estate gurus that will try to make the business sound difficult because they want to convince you that you need their services in order to be successful. Maybe I am over-simplifying things but I don’t think the business is that complicated. Like I mentioned earlier, you can use simple math to determine if the income exceeds the expenses. If it does and you’re happy with the amount of cashflow the property generates, it’s worth considering.
One of the barriers to entry for real estate investors can be the capital involved. Books have been written and courses created about investing in real estate with no money down and it’s possible but, it’s not the norm. Investing in real estate typically involves some type of capital. Even if you don’t need a down payment to purchase a property you’ll still likely need capital. Improvements, repairs and periods of vacancy may all require capital. Over time you can build up a reserve fund to cover these costs but you should have some funds available from the start.
If you have the capital to get involved, real estate investing is worth considering. It’s not as complicated as some would have you believe. It’s important to do your research, develop a strategy and start small. If you do those things you just might find out that real estate investing is simple.