The professional residential real estate world is full of opportunities to succeed. However, taking advantage of these opportunities is much more difficult than it looks on television, where glitzy homes are displayed and sold at a huge profit without a major effort. The business of residential real estate is complex, and experienced real estate investors like Linda Hewlett from Boston, MA, understand how to play the market to their greatest advantage.
In this article, Linda Hewlett shares the top eight lessons that she has learned from her decades of residential real estate experience, offering suggestions that could increase your profits while stabilizing your business.
1. Be Careful with Deals
Beginner real estate investors are often taken in by deals that are too good to be true. After committing to it, they discover that all is not what it seems when they examine the deal. Sellers could be concealing major problems with homes, or the neighborhood could have insurmountable problems like too much crime or noise. It is imperative to do as much research on your deal as possible before spending any money on it.
2. Stay Within Your Area of Expertise
If you are a mostly single-family investor, there is no need to jump to a multifamily home or another type of real estate investment. You should stay within the area in which you feel most comfortable, where you know the overall landscape, and have a good sense of the conditions that apply to your sales and purchases. You may wish to drill down to a specific niche, like luxury homes in certain zip codes.
However, you should balance your area of expertise with proper diversification. Make sure that you have some investments outside real estate as a whole because real estate is not a liquid investment, and it might be difficult to get cash out of a deal when you need it. Your overall financial picture should be carefully managed along with your residential real estate portfolio.
3. How to Find a Great Deal
Many beginners in the residential real estate business spend their time looking through listings for deals, but the best deals are to be had when speaking to local contacts. They may know of a home that needs to be sold right away or a hidden gem that has been overlooked in the local market. Going off the beaten path for deals will ensure less competition for the homes you want to buy, meaning that there will be no bidding wars to contend with.
4. Don’t Overpay for Properties
You should know approximately how much you are willing to pay for a property. Do your own research into the area and calculate its true value. Hype can be dangerous when buying a residential property for investment purposes. Avoid following the crowd, and make sure you can make deals that maximize your investment.
5. Calculate Cash Flow Accurately
One of the most vital lessons learned by Linda Hewlett is that cash flow should always be triple-checked. Due to extenuating circumstances, it is possible to put money into a property and underestimate its cash flow. To estimate cash flow, you need to determine the gross income and deduct the expenses and the cost of debt service. Unexpected problems can crop up that raise your expenses.
6. Don’t Let Greed Blind Your Actions
Investors are sometimes blinded by large dollar amounts when putting money into properties in residential real estate markets, particularly in Boston and other high-priced cities. They may look at the potential income of a property and be so impressed that they pay up without fully researching the implications. Second, third, and fourth looks are necessary, but deciding may be short. Don’t decide if you feel overly rushed; a better deal may come along.
7. Use Leverage and Debt Wisely
Never borrow more than you can afford, even if you feel that a property you can’t quite afford would soon pay for itself. You are more likely to create problems for yourself if you overuse debt or leverage. In addition, it can affect your personal credit score and your standing with lenders if you overextend yourself financially.
8. Work with Seasoned Professionals
Most real estate investors have agents, home inspectors, and other professionals on hand that facilitate their jobs. Make sure that you hang onto these relationships and cultivate them. Great service providers can get you better deals and point out flaws in properties that must be addressed.
Succeeding in Real Estate
Linda Hewlett hopes that these eight lessons can help novice residential real estate investors get started in the business. New investors should research the residential market in great detail, getting to know the available properties, the prices that properties have gone for, and the overall trends in the market. Novices are more likely to make steady money from their investments when approaching the market logically rather than letting greed run away with them.