{"id":11198,"date":"2023-01-25T19:18:41","date_gmt":"2023-01-26T00:18:41","guid":{"rendered":"http:\/\/blog.jlbn.net\/?p=11198"},"modified":"2023-01-25T19:18:43","modified_gmt":"2023-01-26T00:18:43","slug":"real-estate-investing-tips-for-beginners-you-need-to-know-before-investing","status":"publish","type":"post","link":"http:\/\/blog.jlbn.net\/?p=11198","title":{"rendered":"Real Estate Investing Tips for Beginners You Need To Know (Before Investing!)"},"content":{"rendered":"\n

If you are looking to invest your money outside the stock market<\/a>, investing in real estate can be a great venture. With the right purchase, two great things can happen. First, you can build equity in the property by applying rental income towards the mortgage. Second, a substantial income stream can start to generate via any extra monthly cash flow from the investment.<\/p>\n\n\n\n

Do real estate investments sound like something you want to invest in? Property investing can be a great way to build your investment portfolio<\/a>, but beware, buying an investment property is hardly passive income (if you really want passive real estate income, you\u2019ll need to hire a property management company, but they can be costly) and is far more work than most side hustles<\/a>.<\/p>\n\n\n\n

As a new\u00a0real estate owner<\/a>, I quickly found there is a lot of work (and challenges) involved in both the purchase process, as well as the continuous upkeep. These are the lessons I learned from my experience owning and recently selling my first investment property and can help you become a successful real estate investor.<\/p>\n\n\n\n

Finding the Right Property Is Hard<\/h2>\n\n\n\n

When I first started looking for real estate opportunities for my first property, I didn\u2019t realize how hard it would be just to get started. Since it was my initial purchase, my available funds for a down payment were about $30k (low for real estate), so I need a low purchase price in order to keep the mortgage payment low. On top of that, I wanted to buy a property close by. And living in northern New Jersey(where property taxes are relatively high as well) made it difficult to check both boxes.<\/p>\n\n\n\n

I eventually decided to look more south, near my alma mater. The neighborhood was cheaper, but it was an hour away. The reason for this decision was driven by three main factors. Cheaper purchase prices, familiarity with the area, and the potential ease of finding tenants due to its proximity to two universities (more on that later).<\/p>\n\n\n\n

At first, this seemed like a no-brainer in terms of increasing my purchasing power.<\/p>\n\n\n\n

After doing my due diligence, it didn\u2019t pan out as anticipated. Even with the overall cheaper neighborhood, many of the investment properties I viewed were far from turnkey and were relatively distressed. Most were in pretty dire condition and\u00a0required tens of thousands in renovation<\/a>\u00a0cost\u00a0\u2013 no thanks, I was not interested in starting a rehab project right off the bat. I became frustrated. Not only was it difficult to find an investment property in my price range, but the ones that were didn\u2019t exactly project the ability to generate a decent positive cash flow.<\/p>\n\n\n\n

While we\u2019re on the topic of decent cash flow \u2013 it was a vital part of my plan for two reasons. First, just like with regular finances, an emergency fund is needed for maintenance and repairs. Second, there needs to be a safety net for possible vacancy periods. I wanted to make sure I was covered for both.<\/p>\n\n\n\n

When you have a larger down payment, mortgages get cheaper. If I had waited to get a larger down payment ready, my mortgage would have been lower, allowing the rental income to provide me with a higher cash flow. So another lesson learned was next time, save up until I have more to put down.<\/p>\n\n\n\n

In the end, I got lucky on my first property. A friend of mine who owned a single-family investment property in the area I was looking in was ready to sell (he also happened to be a realtor saving me on closing costs). He\u2019d had been renting it out for over 14 years, and fun fact, I myself lived in that very house for four of them (and they were glorious). I knew the house was in good condition, and the details of the sale were worked out with little issue since he was also a real estate agent and handled the sale himself. Within a few months of our initial discussion, the house was mine. Purchased at a reasonable price, and already occupied with tenants.<\/p>\n\n\n\n

When all was said and done, it took a stroke of luck for me to find a good real estate opportunity. Odds are, most potential real estate investors won\u2019t be so fortunate with their first rental property. Keep in mind, you may not find the perfect <\/em>property but wait for one that\u2019s suitable for you. The search can be long and hard. Don\u2019t buy something in haste<\/a> just because you want in the game \u2013 have a plan<\/a>. Determine the important factors that will help guide your decision and their priority levels in advance. Once you find an investment property that checks enough boxes, only then is it time to move forward.<\/p>\n\n\n\n

Location, Location, Location<\/h2>\n\n\n\n

The number one factor for real estate tends to be the location. And that goes double for real estate investing. Owning a property in one of the neighborhoods within close proximity to me was more important than I initially realized. Mine was more than an hour away, and the trip down there (for any reason) took up most of my day. Not only would my back be killing me from the drive, but the round trip was costly. Especially if I had to make multiple trips in a single month.<\/p>\n\n\n\n

In addition to proximity, location is important because it will determine the \u201cdesirability factor\u201d of your rental. A more coveted area will likely increase the ability to quickly find tenants. If you find a \u201cgood deal\u201d in a less desirable area, congrats on the bargain, but it may lead to periods of vacancy. Which means you won\u2019t be making much.<\/p>\n\n\n\n

Pay attention to how established the neighborhood is too. If you\u2019re brave enough to take a leap of faith with an up-and-coming neighborhood, it may very well eventually pay off. However, some\u00a0beginner investors<\/a>\u00a0aren\u2019t willing to take that kind of risk and prefer to buy in an area that is already on the map.<\/p>\n\n\n\n

Finding Tenants Is Stressful<\/h2>\n\n\n\n

As previously mentioned, my investment property was near two universities. This may come as a shock, but I wasn\u2019t the only landlord in town. My house was in good shape<\/a>, but not necessarily the most impressive on the block. Let\u2019s just say renters weren\u2019t exactly banging down the doors to live there. The reality was, there was a TON of competition. And I\u2019ll tell you what \u2013 the students knew it and immediately try to negotiate a lower rent.<\/p>\n\n\n\n

When I purchased the house, it was already being rented by tenants with a lease that ended in May. This meant I needed to start advertising the house as early as the November before. The process consisted of emails with aloof students, and endless attempts to wrangle multiple groups to view the house on the same day, in hopes that one of them would commit (remember my hour-long trip?).<\/p>\n\n\n\n

You might not have to deal with college kids (and their parents), but depending on the market, most tenants look for the best deal possible<\/a>. This means you\u2019ll have to advertise, follow up, and really put in the elbow grease to secure new tenants in time to avoid any occupancy gaps. Take it from me this can all be very stressful.<\/p>\n\n\n\n

Because of all the competition, instead of raising rent each year (as initially planned), in the end, I lowered the rent just to get anyone in there. This was always a painful choice because it ultimately meant a lower cash flow. It really made me question whether or not the investment was even worthwhile. If I could go back and do it again, I\u2019d find a location less saturated by other real estate investors.<\/p>\n\n\n\n

Tenants Are Frustrating<\/h2>\n\n\n\n

This shouldn\u2019t come as a surprise, but most tenants aren\u2019t willing to spend their own money on your property. Sure \u2013 there will be a lot of suggestions in terms of repairs and upgrades but on your dime. I had a clause in my lease that stated anything under $50 was the renter\u2019s responsibility. But, it was mostly ignored.<\/p>\n\n\n\n

As an added bonus, college kids tend to be partiers<\/a>. Believe me, this leads to a lot of repairs that amount to over $50. Ideally, any damage done to the property is the renter\u2019s responsibility to fix, but unfortunately, there is no clause that they have to fix it right.<\/em> More often than not, I\u2019d find some pretty pathetic patchwork or temporary \u201cfixes\u201d from a party that I would later have to correct. This cost me both money and time<\/a> (did I mention my hour-long trip yet?!) And yes, I always had the option to deduct these expenses from the security deposit, but I could have done without the extra trips (and headaches).<\/p>\n\n\n\n

While some tenants can easily spend your money, they are not willing to part with theirs. I set up rent payments through Venmo (how much easier can you get??), yet the collection was still an ordeal every..single..month. Without fail, I always got a text a day or two before with the latest lame excuse as to why one or two of the tenants wouldn\u2019t be able to pay the rent on time.<\/p>\n\n\n\n

In the end, the money would miraculously appear the day before the late fees kicked in (yeah \u2013 they knew what they were doing). Another good reason to have some cash in reserve \u2013 my mortgage company really liked it when I paid on time and didn\u2019t care what baloney my tenants were feeding me that month. I had college kids, but no matter who you rent to, you\u2019re bound to run into issues like this.<\/p>\n\n\n\n

Townships Are Even More Frustrating<\/h2>\n\n\n\n

If you think the tenant\u2019s lack of responsiveness sounds frustrating \u2013 just wait until you need to deal with your property\u2019s township. Our town required multiple inspections each year and their scheduling process was a nightmare to figure out. Once I did \u2013 I was enlightened with the fun fact that the inspections only took place two days a week!<\/p><\/blockquote>\n\n\n\n

Remember \u2013 my investment property was in a college neighborhood, so a whole slew of other houses in the area needed the same inspections. This made it that much more difficult to get mine done. The best was when I would get all the way to my property just to have the inspector let me know they couldn\u2019t make it (BS), and I\u2019d have to schedule all over again\u2026.fun times.<\/p>\n\n\n\n

Selling Isn\u2019t Easy<\/h2>\n\n\n\n

The original investment strategy <\/a>I had going into my first real estate investment was buying and hold, but I recently decided it was time to sell the property. I had built some equity, and thanks to a global pandemic, the real estate market was on fire. The market value was significantly higher than what I paid for it, so I decided it was time to sell it. With such high demand, you\u2019d think selling would be easy \u2013 it was anything but.<\/p>\n\n\n\n

Again, it was a neighborhood that attracted a lot of property investors, so buyers were looking for great real estate opportunities, aka, the cheapest deal they could. There was a lot of competition from other landlords trying to take advantage of the seller\u2019s market too. Potential new real estate investors definitely had a lot of inventory to choose from. Don\u2019t forget to have a cut-off price in mind as you\u2019ll be paying the selling real estate agent so of your profit as well, selling your property needs to be worth it to you.<\/p>\n\n\n\n

Not wanting to miss out, I showed the house as much as possible (which didn\u2019t sit well with my current tenants). To smooth things over, I knocked a bit more off the (already low) monthly rent. Truth be told, even if I hadn\u2019t sold, I doubt they would have signed for another year.<\/p>\n\n\n\n

Lesson learned? When attempting to sell a house, it may be better to have the house vacant so you\u2019re not constantly asking tenants to leave the property they pay to live in so strangers can walk through it. Or try to identify days\/times that would work best for tenants to have prospective buyers come to view.<\/p>\n\n\n\n

You Will Make Money<\/a><\/h2>\n\n\n\n

Even with all the frustrations, my first venture into real estate investing was an overall success. I learned a lot and was able to make back my initial investment (plus an additional $20k).<\/p>\n\n\n\n

For only owning rental property for only a few years, it was relatively profitable. The original plan was to hold on to it for much longer, but due to the sudden rise in house prices, it was a rare opportunity to make almost three years\u2019 worth of rental profit without the headaches.<\/p>\n\n\n\n

You might not get the same chance to pounce on a sudden spike, but the longer you own the property, the more equity you\u2019ll build, and up the odds of making a sizable profit when you go to sell.<\/p>\n\n\n\n

Final Thoughts<\/h2>\n\n\n\n

I hope you\u2019ve enjoyed my Real Estate Investing Tips for Beginners: My Lessons Learned guide. With so many ways to invest out there, owning investment properties has always been a great form of diversification and an alternative way to build wealth<\/a> \u2013 for good reason. When buying rental property is done properly, cash flow can start to generate right away, and the return can be quite lucrative.<\/p>\n\n\n\n

The trade-off here is that although you\u2019re not subject to the same ups and downs as the stock market, there is a lot of responsibility and hard work involved when buying a house. To be a successful real estate investor, you\u2019ll need to have patience and be willing to commit to the work. If you can do both, investing in properties will be a great avenue to create another income stream and move you closer to your financial goals.<\/p>\n\n\n\n

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If you are looking to invest your money outside the stock market, investing in real estate can be a great venture.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[254,3421],"tags":[888,3515],"_links":{"self":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/11198"}],"collection":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=11198"}],"version-history":[{"count":2,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/11198\/revisions"}],"predecessor-version":[{"id":11200,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/11198\/revisions\/11200"}],"wp:attachment":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=11198"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=11198"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=11198"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}