Tempted to Invest in Real Estate? Read This First

invest real estateWith home values depressed and interest rates low, a lot of folks are beating the drum for real estate investment. "Record affordability provides rare window of opportunity," announces a recent Inman News report on the hottest investment markets. "Housing is back -- beat the crowd!" urges Fortune magazine. Don't get left behind in the interest-rate dust, warns the Mortgage Bankers Association.

So if you have the means and you're tempted to buy property with the aim of renting it out and/or flipping it for a profit, what do you really need to know? We asked seven leading real estate investment bloggers for their best advice on how novices can jump into the game.

1. Richard Warren, author of "A Rehabber's Tale, the Reality of Fixing and Flipping Real Estate" and frequent speaker before real estate investment clubs:

Start small with something you can handle. My first foray into real estate investing was a learning experience of epic proportions. After watching a few too many episodes of "This Old House," and having some very basic experience in home improvements, I set out to renovate a foreclosure on Long Island. I embarked on a project that was so ambitious that I'm still amazed that I not only survived, but made a small profit. It was planned as a six-month project but actually lasted more than two years.

I can't stress enough that novice investors need to stay within their abilities until they acquire some experience. Risk is inherent in real-estate investing. It is not something that can ever be avoided, but it can be managed in a way that increases the likelihood of success. While experience is certainly the best teacher, there is much that can be learned from books and real estate websites such as Bigger Pockets. Take the time to learn before taking the plunge into investing.

2. J. Scott Steinhorn, a fix-and-flip rehabber and landlord out of the Atlanta area:

In many ways, being a professional investor is analogous to being a professional athlete -- you don't start by hitting home runs or shooting three-pointers. Instead, you hone your skills by spending time learning, practicing and truly understanding the basics.

For real estate investors, these basics include: researching your local real estate market, analyzing investment deals, understanding property values, estimating renovation costs, defining your business and tax entities, networking with successful investors, etc. With the plethora of websites devoted to real estate these days, all the information you need to put yourself on the track to becoming a world-class investor is right at your fingertips. If you truly want to achieve long-term success as a real estate investor, take the time to build a strong foundation of knowledge and skills.

3. Peter R. Giardini, expert in current economic and housing issues, successful real estate investor and coach:

Don't just jump in! Spend time learning your local market from both an economic and housing point of view. Become a member of your local real estate investors association and network with other investors who are actually doing deals. Offer to take them to lunch and learn from them which strategies (wholesaling, rehabbing, renting, lease-option, tax liens, etc.) are working in your market.

Develop a plan that captures those strategies, recognizes your weaknesses and plays to your strengths. Figure out what resources (critical education, contractors, Realtors, funding sources, etc.) you need to get started. Pick one strategy and become an expert at it. Stay focused and don't switch strategies! Remember Rome was not built in a day, and you can't eat an entire elephant in one sitting.

4. Joshua Dorkin, founder and CEO of the real estate investment website

It is so easy to get caught up in the hype and excitement that go with the premise of getting rich from real estate investing. One of the most common mistakes I see new investors make is to jump in and buy a property without the fundamental understanding of what happens next. In fact, they typically don't understand if what they just bought is even a good deal.

If you don't know how to evaluate a property -- from the perspective of a potential landlord or flipper -- learn how. If you don't know how to manage, market, evaluate, lease or sell, then learn. Treating your real-estate investing like a business will save you hardship and potentially serious financial losses. The popular saying in real estate is that you make your money when you cut your deal to buy the property, not when you sell it. That's 100% true.

5. Marty Boardman, Chief Financial Officer for Rising Sun Capital Group, LLC, a real estate investment firm based in Gilbert, Ariz. His firm purchases homes at the courthouse steps and public REO auctions.

So you want to be a real estate investor? What should you do first? Become a Realtor. As a Realtor, you'll have total access to the Multiple Listing Service in your area. That's where you'll find bargains on REOs and short sales. More importantly, you'll need the MLS to do market analysis. It's unrealistic to ask a Realtor to do this work for you, especially in the beginning.

Most Realtors I know don't have the time to help fledgling real estate investors with their due diligence. Sure, there are real estate attorneys and investment gurus that say you shouldn't hold a real estate license. That's because as a real estate professional you will be held to a higher standard. If you are a licensed Realtor and act irresponsibly while transacting a deal there will be painful consequences (like stiff fines and penalties from the state real estate board). But I like being held to a higher standard. I also like knowing if I get into a deal and there are problems I'll have the support of my real estate broker and the state association of Realtors.

6. Jon Holdman, Flying Phoenix LLC, real-estate investor who owns Denver rental properties and has invested in fix-and-flip, development, and mini-storage projects.

If you want to buy rental properties, you need to understand the reality of expenses. New investors sometimes are told "This property has a cash flow. The rent is $1,000 a month and your PITI with 20% down will be only $700. That's $300 a month in your pocket." While taxes and insurance are the start of your expenses, they're only the start. There are many other costs, such as maintenance, property management, utilities, advertising, and legal and accounting charges. In addition to expenses, there will be big capital items such as new roofs, furnaces and sewer lines. Sometimes you have some outlandish expense like a tenant who goes ballistic and does a lot of damage. Or, you have to spend six months with no rent doing an eviction.

If you own one property for a few years, you might get lucky and avoid these items. But if you want to build a portfolio of a dozen properties and hold them for several decades, you will have to deal with these things. A roof lasts 20 years. So, you better budget 5 percent of the cost of a roof every year for every property. If you own 20 properties, you'll be replacing, roughly, a roof every year. And you will have vacancies. Even if vacancies are low in your area, when one tenant moves out you will have to do some cleaning and repairs -- "make ready" as it's known in the business -- before the next one moves in. It's impossible to predict the exact expenses that will apply to any particular property in any particular year. Nevertheless, it is almost always more than taxes and insurance. Setting aside some of your cash flow to cover these unpredictable but inevitable expenses will keep you from losing your property when you're faced with a big bill.

7. William Barnard of Barnard Enterprises, Inc., a full-time real estate investor who has invested in spec building, land development, foreclosure acquisitions, flipping and landlording. He does millions of dollars of real estate transactions each year.

To become a real estate investor, you need both determination and self-motivation. Many try and fail at real estate, mostly because they believe that making money in real estate is easy. It is not. While it is not rocket science, it is hard work.

For me, starting out was an emotional roller coaster. One day, you feel like you are on top of the world, and the next, in a hole too deep for a ladder. Individuals must understand that you must weather the storm, which is where the determination comes in. If failure is not an option, how can you fail? Education is the third important factor and without it, negative life-changing errors can be made. Get educated properly from those with experience in the specific strategy you intend to utilize. Focusing on one strategy will help prevent you from spinning your wheels."

How to Profit from Real Estate Investments

These AOL Real Estateguides can help, whether you're in the market to buy, rent or sell:

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