5 Rules for a Successful: I have devised the following rules for successful real estate investing during my many years of success and failure. These are the same rules that I follow today and share with our clients at Real Estate Investments.
Knowledge is the new currency. Without it you are condemned to follow the advice of others without knowing if it is good or bad. Knowledge will also help you go from being a “good” investor to becoming a great investor, and that knowledge will help provide a passive income stream for you or your family.
Set your investment goals
A goal is different from a wish; you may want to be rich, but that doesn’t mean you’ve ever taken steps to make your wish come true. Defining clear and specific investment goals becomes your roadmap and action plan to achieve financial independence. Statistically, you are much more likely to achieve financial independence by writing specific, detailed goals than by doing nothing.
5 Rules for a Successful: Your goals may include the number of properties you need to purchase each year, the annual cash flow they generate, the type of property, and the location of each property. You may also want to set parameters on the required return rates.
Always invest with a long-term perspective in mind. Never speculate on quick short-term gains in appreciation, even in a heated market with double-digit gains. You never know when a market will peak and it is usually 6-9 months after the fact when you find out. Don’t chase appreciation. Only invest in conservative value games where the numbers make sense from the start.
Invest in cash flow
With rare exceptions, always buy a real estate investment with a positive cash flow. The higher the better. Your cash yield is directly related to the pre-tax cash flow from your property.
5 Rules for a Successful: Cash flow is the “glue” that holds your investment together. Your assets will grow over time (through loan appreciation and amortization), while your cash flow covers operating expenses and debt service on your property.
Be market independent
The United States is a very large country made up of hundreds of local real estate markets. Each market moves up and down independently due to many local factors. Therefore, you must recognize that there are times when it makes sense to invest in a particular market and there are times when it doesn’t.
Invest in the markets only when it makes sense, not because you live there or have already bought property there. There is a timing element and you don’t want to reverse the trend.