How Do I Become a Successful Real Estate Investor?

Real estate investing is an attractive way to generate passive income, build an investment portfolio, or divide your wealth into assets. Every real estate investor has their own goals, which are reflected in the properties they choose and the type of real estate investing business plan they develop. An investment property is an asset that can earn a return through rental income, capital appreciation, or being sold after repairs and redevelopment. 

Anyone can become a successful real estate investor with the right tools and strategies in place. Research, planning, and continuous learning are crucial to giving you the skills and knowledge to navigate the market and make appropriate investment decisions. Different investment strategies come with their own risk profiles and the market differs on both a local and national level. 

We’re sharing our property investment tips to become a successful real estate investor, from choosing the right property to financing options and how to mitigate risks.

Research and Education

The first step for any investor is to research the market. This step is also important if you’re entering a new market for the first time. Reputable platforms and publications like Zillow, Redfin, Realtor.com, and Privy are great resources for staying on top of market trends and understanding the local market. Education is crucial, whether you’re investing in your first property or have previously worked as a real estate agent.

Being able to confidently analyze a market, even with unlimited funds, is daunting. Because it’s so difficult, thousands of people who want to invest in real estate remain on the fence, and those who want to explore new markets, simply do not. Privy lets you make confident decisions by utilizing real-time transactional data from successful investors, applying their proven strategies to instantly surface similar profitable investment opportunities anywhere in the US. 

Online resources like Coursera and Udemy mean you can continue your education from anywhere in the world with virtual classes. Udemy is an online learning marketplace that allows you to search for real estate investing courses by filtering for beginner-friendly options and classes that focus on aspects like financial modeling, real estate flipping, and property management. By comparison, classes on Coursera are offered by over 300 leading universities and companies. Many of these classes come with a certification and further resources.

Platforms like Inman, BiggerPockets, and HousingWire can help you stay on top of the latest real estate trends, from understanding changing consumer behavior to interior design trends and mortgage rates and economic trends. Just like reading your morning news updates, these websites offer factual, snapshot articles to stay up to date with the industry’s latest news.

Developing a Plan

Becoming a successful real estate investor requires you to define your idea of success by setting investment goals. Do you want to earn passive income from a small number of properties? Do you want to scale your portfolio into a business? Establishing your investment goals makes it easier to create a business plan for your real estate investments. 

A business plan covers all aspects of your business and forms the foundation of your real estate investment strategies. You can think of your business plan as a roadmap for success, giving a step-by-step strategy on how to achieve your investment goals. Your business plan can be defined with financial planning and budgeting to set a realistic timeline for success.

Financial planning and budgeting are crucial to ensuring you can cover the costs involved with the property’s purchase and management. There are different financing options available that we’ll explore later in this guide. Establishing a budget for your investment properties will help narrow your search and set you up for success.

Choosing the Right Property

Once you have your budget, you need to choose the right property. Most of the real estate investment strategies you see online will offer advice on the factors to consider when selecting a property. Location, property type, and the potential for appreciation are the top three things to assess when considering an investment property.

Investment strategy is also key. There are many ways to invest.

Successful real estate investors should vet the property’s surrounding neighborhood thoroughly. Consider the area’s livability and what amenities are offered. Get in touch with the local planning department for information on future developments. If construction is underway, it’s a good sign of future growth and may suggest you’re entering the local market at a lucrative time. 

A high vacancy rate in the local neighborhood can be a red flag and suggest it’s a less desirable area. It can result in landlords reducing rents to attract potential tenants and may suggest the neighborhood is in decline or a seasonal cycle. Websites like Zillow and platforms like Privy can help determine the average selling price for the area to give you a feel for the local market value. 

It’s also important to research the average rental cost in the neighborhood. This research can allow you to determine if an investment is feasible and the potential after-repair value (ARV). Don’t forget to account for factors like property taxes when determining feasibility. 

Financing Your Investment

Most real estate investors don’t have the liquid capital available to make their investment. There’s a range of financing options available for real estate investors, from conventional bank loans to hard money loans and home equity loans. Although conventional mortgages are a popular option, there’s a range of alternative financing options available.

These options will suit different types of investors and you should consider the purpose of your investor, for example, if you’re flipping a property or renting it, when deciding your financing options. 

1. Conventional Bank Loan

A conventional bank loan typically takes the form of a mortgage. This financing option typically requires a down payment of at least 30% with a minimum credit score, asset, and income threshold to qualify. You’ll need to show you can afford any existing debts, such as your home’s mortgage, and the monthly loan payments of the investment property. 

Most banks won’t factor future rental income into their debt-to-income calculations. You can choose between an adjustable-rate mortgage, which may result in fluctuating monthly payments, and a fixed-rate mortgage, offering stability and predictability for better financial planning.

2. Hard Money Loan

A hard money loan is typically used to buy a property before immediately paying the loan off with another form of financing.  This financing option is based on short-term, high-interest loans and is typically used for flipping properties. If you’re not flipping the property, other forms of financing may be more cost-effective and convenient.

3. Private Money Loan

A private money loan comes from an individual, such as family or friends, and may also be used as a model for partnerships. Entering a partnership is ideal if you have different skills and experience to bring to the table. 

A silent partner may want to invest in properties and hand off the day-to-day running to an experienced third party. These loan terms and interest rates will vary depending on your relationship with the other party. You’ll only want to use this option if you have a long-term or established relationship with the other party.

4. Home Equity Loans

You can borrow against your home’s equity to finance an investment property. This option is popular amongst first-time real estate investors, but you’ll want to consider the risks involved. A home equity line of credit (HELOC), cash-out refinance, or home equity loan can allow you to borrow up to 80% of the home’s equity value to put towards an investment property. A cash-out refinance comes at a fixed rate but will extend the lifespan of your existing mortgage. 

5. Commercial Loans

A commercial loan is ideal for property investors seeking to purchase commercial properties, mixed-use developments, and multi unit residential properties. These loans are not like your typical residential mortgage and have specific rules attached. Commercial loans are not intended for single-family homes or owner-occupied residences. They have shorter terms than a residential mortgage, typically ranging from five to twenty years with amortization periods available to extend the loan term.

Managing Your Investment

Real estate investment strategies should also consider what comes after you purchase your property. It’s important to implement strategies and best practices to make your operations as cost and time-efficient as possible to maximize your ROI. 

The specific strategy you choose will vary depending on your investment goals, financing options, and business plan. You’ll want to prioritize maintenance and tenant relations, regardless of what type of property niche you’re investing in.

Here are 5 property management strategies you can implement:

1. Invest in a property management system

Successful real estate investors utilize property management systems, from CRMs to market research tools, to manage their properties and minimize labor-intensive tasks. 

Customer relationship management (CRM) software simplifies communication with clients, helping to develop these relationships and build trust between both parties. Real estate technology can streamline day-to-day tasks, allowing you to focus on building relationships and expanding your portfolio. A property management system maximizes your profitability, gives you a competitive edge, and boosts efficiency. Cloud-based solutions can allow you to monitor and track your properties from anywhere in the world. 

2. Focus on marketing

Being a real estate investor is about more than just buying properties. Marketing is crucial to attracting potential buyers and renters to your property if you’re working with a short-term or long-term rental. Start building connections and relationships to help market your property, from listing it on local media platforms to advertising on national websites. You can invest in tools like virtual tours to give your listing a competitive advantage. The real estate agent you work with can help implement a strong marketing strategy.

3. Utilize Automation

Automation is a secret weapon for staying organized as a real estate investor. Manage your time better and off-load manual tasks by investing in automation tools. This technology can deal with recurring tasks, like automating arrear chasing, emailing payment reminders, and organizing your calendar. Automation can boost your ROI and improve your finances by providing an instant overview of your financial health. 

4. Minimize Your Hiring

It’s a common misconception that you need a team of people to operate your investment properties. Unnecessary hiring can increase your overheads and reduce your ROI. Knowing how to calculate ROI for real estate investments is crucial to making informed hiring decisions. Automation tools mean that you can operate with a smaller team or work entirely independently if you have a smaller portfolio. Property management tools and automation can be a more affordable alternative to outsourcing and hiring additional team members.

5. Prioritize Maintenance and Tenant Relations

Maintenance and tenant relations are vital to keeping your properties in good condition and your rental properties occupied. Real estate investors should always strive to have a good relationship with their customers, from onboarding to regular maintenance. A CRM doesn’t replace traditional customer service but is an important tool to stay connected with clients.

Property management should focus on having open lines of communication with tenants, enabling them to address maintenance issues and concerns as quickly as possible. Being in regular communication can build trust and showcase a commitment to tenant satisfaction. Promptly handling maintenance requests ensures your property is safe for those living there.

Risk Management

The real estate industry doesn’t guarantee success. Real estate investment strategies focus on risk mitigation to minimize potential financial losses. It’s important to understand the market and have a structured business plan to navigate any potential problems. Every investor should know how to calculate their ROI as part of their risk management. 

Identifying and mitigating risks plays a critical role in developing your real estate strategies. Working with experts can provide insights into market trends and advice on the best financial modeling option for your investments.

There are practical steps you can take to mitigate risks, such as diversification by spreading your investments across different locations and property types. Diversification creates a risk-resistant portfolio, which is more balanced with enhanced liquidity. 

Investing in high-demand areas can ensure consistent income, while low-risk finance methods will give you favorable terms to decrease financial pressure. Vetting tenants and having contingency funds can minimize the risk of rental defaults and financial shortfalls.

Continuous Learning

The market is constantly evolving. Real estate investing requires you to stay alert, from monitoring market changes to identifying future trends. Investors should be proactive in embracing continuous learning, from reading books to attending seminars and signing up for courses. 

Staying updated on market changes can enable you to adapt your real estate investment strategies to explore new opportunities or minimize risk if the market drops. Networking with other investors can open the door to new opportunities and investment options.