I was in my early 20s when I began investing in real estate, and while I knew the intricacies of real estate itself -- investing was another story. Over the past two decades of investing, I’ve learned a few rules I wish I would have known from the beginning.
The real estate market is constantly fluctuating, but many of the basics stay the same -- as do these four rules. To jump start your career in real estate investment, here are the rules to follow.
1. Don’t wait for the right time.
Much like the stock market, in real estate we’re always skulking and waiting, ready to pounce on what we believe is the perfect time to jump into the market. I’m here to tell you -- don’t keep waiting. You can spend the next few years waiting for the perfect time, but if you have the startup funds and are eyeing a particular set of properties at a good deal, it’s best not to wait.
Start out simple. Buy one or a few properties and go from there. The earlier you begin investing, the sooner your properties will begin to appreciate and, in turn, provide you with more capital to start your next venture.
2. Start bigger, sooner.
It’s perfectly fine to begin investing in smaller, low-end properties -- but that’s not how you build an empire. As soon as you have the hang of investing, don’t hesitate when it comes to acquiring larger properties. Larger assets tend to appreciate faster and can be more beneficial to your portfolio as opposed to smaller, cheaper properties.
When considering if you should go big in real estate or return to the stock market, there are two more things to consider: 1)Properly investing in the stock market will cost you on average the same as investing in real estate, and 2) In real estate, even when the market crashes, you will still have a tangible asset to salvage. Of course, there are many other nuances when comparing the two, but to become a real estate mogul -- you’ll have to stick to real estate.
3. Don’t sell appreciating assets just yet.
When we’re young, we tend to be quick to sell in hopes of making a return. This is the worst thing you can do in densely populated areas or up-and-coming cities. In these hot markets, the longer you wait to sell, the better. Across the country, in places like Seattle and Houston, many properties have doubled in value over the past three years.
Many of these properties will continue to appreciate, so determining when to sell is more complicated than simply seeing a slight return. Keeping track of market forecasts will help to determine when it’s time to sell. This is also something that will be learned with experience.
4. Invest using a self-directed individual retirement account (IRA).
As an investor and entrepreneur, you should always be on the lookout for ways outside the obvious to improve your return. When using personal funds to invest, the best way to do it is through a self-directed IRA. A self-directed IRA is the same as the usual IRA, however, it allows alternative investments for your retirement savings. By investing through an IRA, you can avoid using your taxed income. Most banks have this option, so it’s best to speak with a financial advisor before diving in head first with this kind of investment -- and remember to leave yourself with something for retirement.
Save yourself some trouble and remember these rules along with the basics when you’re in the beginning stages of real estate investment. With so many details to consider, these simple rules can easily be overlooked.