Are you struggling to navigate the real estate industry and make lucrative investments? Young investors and newbies always struggle to learn the ropes, and often end up making mistakes costing hundreds and thousands of dollars.
Buying properties aggressively and without research is a terrible strategy that will thwart your wealth generation goals. This article will walk you through some powerful lessons that will help you build a lucrative and profitable investment portfolio.
Making Accurate Forecasts & Calculations
Accurate forecasting and cash flow calculations are the ultimate secret to ensuring you never have to lose a single cent. On the other hand, faulty calculations and forecasts are a leading reason behind unprofitable investments and staggering losses.
Profitability comes from two basic strategies:
- Investing in lucrative properties
- Managing them efficiently and preserving their value
One can lose money from a bad investment, but with efficient property management, you can transform a bad investment into a profitable one. Most newbies and young investors mess up their forecasts and calculations by focusing too much on monthly cash flows.
If you focus on monthly arrangements, you fail to take into account factors such as unpaid rent, burdensome repairs, mold and water damages, and messy eviction processes. It’s essential to include all direct and indirect costs, such as maintenance and repairs, vacancy trends, accounting and administrative expenses, and property management costs.
Property Management Increases Returns on Investment (ROIs)
It’s essential for young investors to understand that higher ROI's stem from efficient and effective property management. Even if you bought an overpriced house with a lower market value, you can boost its market value and significance with excellent property management.
Tenant screening and retention are the two simplest and most straightforward strategies to boost returns and profits. If you manage to land a good tenant, it’s wise to make them comfortable and prolong their contract as long as possible.
In order to ensure effective tenant retention, it’s essential to identify the Four Horsemen that reduce rental returns on investment.
These Four Horsemen are:
- Unpaid rent and defaults
- Property Damages
- High tenant turnover
- Evictions
A comprehensive and scrutinized tenant screening process can eliminate these issues. It’s also essential to undertake seasonal or bi-annual inspections to ensure your properties are maintained in good shape. Annual rental increments also help increase the rental returns.
House Hacking: An Excellent Beginner Strategy
Did you know that house hacking is an excellent strategy for newbie investors looking to own rental properties? House hacking involves investing in a small multi-family properties with 3-4 units. The landlord can live in one unit, and rent out the other units to afford the mortgage.
It’s a great strategy because it allows a flexible mortgage plan and offers you a residential unit for your own comfort. More importantly, with house hacking, you can find lenders willing to allow 75% of your future rents to go towards your rental income. Qualifying for the loan is easier, and down payments and interest rates are quite affordable, alongside other mortgage costs.
Aside from the ease of financing, house hacking also promises a flexible and easy tenant management process. You can easily manage all the neighboring properties, and enjoy much higher cash flows as compared to single-family properties.
Investors don’t necessarily have to invest in a multifamily property to enjoy this hack, but rather, you can also rent out bedrooms or a basement in a single-family property.
Stop Chasing After the Perfect Deal
There are no perfect deals in real estate, but rather, a savvy investor who can turn a bad deal into a savvy and promising one. Chasing after the perfect deal will thwart your growth and progress even before you have a chance to invest.
There are good deals, and then there are bad deals. It’s essential to differentiate between these two, for in most cases, bad deals are disguised as good and promising investments. Naturally, this requires an investor to have sound financial acumen, and the ability to calculate accurate returns and cash flow projections.
Finding a good deal is a long drawn-out process that requires research, patience and financial savviness. It’s wise to set realistically achievable targets for the desire cash flows that you envision to achieve financial security and stability. Experts recommend beginners to aim for at least 10% returns, but investors can expand their horizons with realistic expectations.
Most importantly, investors must commit to avoid settling for a deal that fails to deliver their targets. Instead, find a better deal that satisfies your goals and ambitions. The fear of negotiation discourages many young investors for pursuing their goals with confidence.
It’s important to keep pressing forward with an unwavering determination into you find a good deal that satisfies your financial prospects.
Cover your Basics
Focusing on fancy terminologies, and the use of S-Corps, trusts and LLCs is a debate that you can explore later on in your career as an investor. Initially, it’s wise to focus on covering your basics and letting the fancier elements slide until you’ve built a comfortable net of profitable investments.
Investors tend to focus on a great many aspects that are not necessarily tied to the profitability of their investments. For instance, there’s an undue emphasis on market timings, trends and financing options. It’s wise to avoid paying attention to these elements until you’ve gotten your bearings and cemented your position as an investor.
Focusing on advanced and fancier strategies, such as asset protection, will only distract you from the elements that demand your focus. Focusing on the fundamentals will keep you grounded and ensure profitability.
These basic elements include:
- Cash flow projections
- Tenant screening processes
- Attracting high-profile and respectable applicants
- Strategies to land profitable deals
Focusing on these elements will help you make accurate projections and invest in lucrative deals. Mastering the basics of financial management and property investment offers the ideal route to wealth generation and security.
Conclusion
Navigating the real estate industry may seem challenging, but committing to these lessons will help you grow in wealth and acumen. Focus on covering your basics and learning the ropes instead of making aggressive and erratic investment decisions.
If you’d like to talk more about property management, or you need help with Everest Property Management, please contact us at Everest Realty.
As a top producing Realtor and Property Manager; Terry specializes in sales, extensive construction homes, rentals, REO’s, short sales, and all aspects of Real Estate. After graduating the University of Michigan with a master in MBA, Terry continued his endeavor and now has over 15+ years of experience in the Real Estate world. If there is anything that has to do with Real Estate and sales, you can always be sure of Terry to provide important, specialized knowledge.
