Best advice for a first-time real estate investor
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MUST READ ADVICE FOR NEW REAL ESTATE INVESTORS.
Investing in real estate is a popular choice for building wealth and securing financial stability. This is because it offers numerous advantages for investors, from potential capital gains to tax benefits.
Real estate properties tend to appreciate over time, meaning they can be sold at a higher value than their purchase price. Additionally, rental properties can generate a steady and reliable cash flow that can supplement or replace traditional income sources. [1]
Even if the investor chooses not to rent out the property, they can still benefit from their investment by using it themselves because real estate is a tangible asset.
Its tax benefits include deductions on mortgage interest, property taxes, and depreciation, which can significantly reduce taxable income. [1]
Real estate investments can even serve as a hedge against inflation, as property values and rental income typically rise with inflation, preserving the investor’s purchasing power. Finally, real estate investments can help diversify a portfolio, reducing risk by spreading investments across different asset classes.
With all of these benefits in mind, it is safe to say that venturing into real estate investment can be exciting for an investor. However, the road to success is filled with challenges and potential pitfalls. Here we will offer some tips that can help real estate investors avoid these problems and maximize their returns.
WHAT IS THE BEST ADVICE FOR A FIRST-TIME REAL ESTATE INVESTOR?
The reason these tips are important for first-time investors is because real estate investing carries several risks that must be avoided as much as possible. For example, real estate is affected by market volatility, where property values can fluctuate due to economic conditions, changes in interest rates, or shifts in demand. This can lead to potential financial losses if properties need to be sold during a market downturn. [2]
Additionally, real estate investments often require substantial capital and may involve taking on considerable debt. If rental income or resale values do not meet expectations, this can cause problems for the investor. [2]
Generally speaking, owning real estate also means taking on the responsibilities of being a landlord. Investors need to be prepared for property management issues, such as finding reliable tenants, dealing with maintenance and repair costs, and navigating local regulations.
To help you navigate this complex journey, here are some of the best tips for a first-time real estate investor:
EDUCATE YOURSELF
Real estate investing is not something you can just jump blindly into. Educating yourself is the cornerstone of real estate investing, especially if you want to be successful even as a first-time investor.
Begin by familiarizing yourself with the fundamentals of the real estate market. Learn about some of the most common terminology such as cash flow, due diligence, and REITs (real estate investment trusts). [3]
Learn about the different types of properties and understand how local market conditions can affect real estate investments. Investors should also know about the economic indicators that influence property values.
There are a lot of basics to understand, including financing options, real estate regulations, and common investment strategies. You can start educating yourself by reading books by experienced investors, attending seminars, and participating in online courses. Networking with investors can also give you some valuable insights and practical knowledge.
A solid educational foundation will help you make informed decisions moving forward. It helps mitigate risks and maximize your chances of achieving long-term success in the real estate market.
DEFINE YOUR INVESTMENT GOALS
Aside from understanding the real estate market, investors also need to understand their own investment goals. This step is crucial as it will guide all your subsequent decisions and strategies.
Determine what you hope to achieve with your real estate investment. Are you looking for long-term capital appreciation, steady rental income, or a quick flip for a fast profit?
Understanding your financial objectives, risk tolerance, and timeline will help you choose the right type of property, financing options, and investment strategy. For example, if you seek a stable income stream, investing in rental properties in established neighborhoods may be ideal.
On the other hand, if you’re aiming for substantial returns in a shorter period, you might consider properties in up-and-coming areas or distressed properties that can be renovated and sold at a higher price.
Remember that investing is a business and you need to treat it like one. Just as you would have a business plan in place for a company, you will want to do the same thing for your real estate investments. [4]
By defining your goals, you can create a focused plan, avoid costly mistakes, and measure your progress more effectively, setting a solid foundation for your real estate investment journey.
CHOOSE THE RIGHT LOCATION
First-time investors may prefer properties that are close to home. However, this is something that often limits their investment options. It is important to open yourself up to the possibility of an investment property outside of your local area. [4]
The old adage “location, location, location” holds true in real estate after all. The location of a property significantly impacts not only its current value but also its potential for appreciation.
To ensure a wise investment, focus on areas with robust economic growth, good infrastructure, and a diverse employment base. Proximity to amenities such as schools, healthcare facilities, shopping centers, and public transportation tend to enhance a property’s desirability.
Savvy investors even go as far as researching local market trends and future development plans as these factors can influence property values. Investing in a promising location not only provides better rental yields but also reduces the risk associated with property value fluctuations.
START SMALL
As a first-time investor, it’s wise to start with a smaller, more manageable property. Beginning with a modest investment, such as a single-family home or a small multifamily property, allows you to learn the ropes of property management, understand market dynamics, and gain practical experience without taking on overwhelming financial risk. [4]
Small investments are also easier to manage, which is one of the challenges of owning real estate. Starting small will give you more flexibility, allowing you to build confidence and competence in handling tenants, maintenance, and financial planning. [4]
By starting small, you can also gradually scale your portfolio, leveraging your initial successes to fund larger investments. Depending on your risk tolerance, this cautious, incremental approach may help support sustainability and long-term success in the real estate market.
PLAN FOR PROPERTY MANAGEMENT
Property management includes tenant screening, rent collection, maintenance, dealing with legal issues, and many other tasks concerning the day-to-day operations of the rental property. Decide whether you will manage the property yourself or hire a property management company. [5]
Without a solid plan for these responsibilities, you risk facing significant challenges that can eat away at your profits and cause unnecessary stress.
Self-management can save money but demands a considerable time commitment. This is not for everyone. A property management company can handle all aspects of property management, offering peace of mind and allowing you to focus on growing your investment portfolio. [5]
Whichever route you choose, having a clear strategy for property management will help you maintain the property’s value, keep tenants satisfied, and ultimately achieve your investment goals.
THE BEST REAL ESTATE INVESTMENT FOR ACCREDITED INVESTORS: MULTIFAMILY SYNDICATION
While first-time investors may struggle in the beginning, there are investors who have enough investing experience and knowledge to help them navigate even more complicated real estate deals. Accredited investors are allowed to access unregistered securities because they have the net worth and annual income to serve as their safety net in case a deal does not work out.
Accredited investors have access to investments that are not usually available to regular investors. If you are an accredited investor looking to add real estate to your investment portfolio, consider going for multifamily syndication.
Real estate syndication is an investment strategy that involves multiple investors pooling their financial resources together to buy a single real estate property. This solves a lot of the problems investors face when going into real estate, such as the high barrier to entry and the need for property management. [6]
A syndication deal can be arranged for almost any type of property, but multifamily syndication is the most popular among accredited investors. This is because multifamily properties like condominiums and apartment communities are associated with strong and predictable cash flow. Multifamily real estate properties are also more difficult to acquire for a lone investor because of how expensive they are.
With multifamily syndication, you do not have to spend millions trying to acquire a large multifamily property on your own. This significantly reduces the risk involved while making these larger real estate assets more accessible.
Syndication deals are arranged by a syndicator, also known as a sponsor, who handles everything from start to finish. They create and execute the business plan, locating the investment property, conducting due diligence, securing the loan, and even managing the property once the deal is in place. As the general partner (GP), they take on most of the responsibilities in the syndication. [6]
The GP is also in charge of finding investors who will participate in the deal. Here, accredited investors serve as limited partners (LPs) and their job is to provide most of the capital needed to acquire the property. Beyond this and paying certain fees, they have no further responsibilities. This makes it a true passive investment in real estate. [6]
With real estate syndication, investors no longer have to worry about becoming landlords. They can just sit back, relax, and enjoy their share of the cash flow. Depending on the deal structure, they may also earn a share of the equity upon resale. Every deal is different, so it is important to perform your due diligence before joining a syndication deal.
Either the syndicator will take care of the property’s day-to-day operations or hire a property management company. Either way, investors do not have to deal with tenants or running the apartment community.
WORK WITH BAM CAPITAL FOR THE BEST MULTIFAMILY REAL ESTATE SYNDICATION DEALS
Keep in mind that most real estate syndication deals are exclusive to accredited investors. Investors need to be comfortable with not having access to their funds for an extended period of time because syndication deals last for several years. Luckily, accredited investors tend to be more comfortable with a little bit of illiquidity.
Accredited investors can also choose the best syndicator to work with. This is an essential skill because most of the decisions will be made by the syndicator in this passive investment.
Work with a trustworthy syndicator with a reliable track record for excellence: choose BAM Capital.
BAM Capital is an industry leader known for its award-winning investment strategy that creates forced appreciation while mitigating investor risk. They focus on high quality multifamily real estate properties that have in-place cash flow and proven upside potential. They prioritize properties that are Class A, A-, and B++. In fact, BAM Capital now has over $700 million AUM and 5,000+ units. [7]
This Indianapolis-based syndicator is also vertically-integrated, meaning they can guide their clients through the entire syndication process. They can handle everything from acquiring the properties to renovating and managing them. [7]
No investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions.
For accredited investors who want to enjoy the passive income and all the other benefits of being in a multifamily syndication, schedule a call with BAM Capital and invest today.
Sources:
[1]: https://www.investopedia.com/articles/mortgages-real-estate/11/key-reasons-invest-real-estate.asp
[2]: https://www.investopedia.com/terms/i/investmentrealestate.asp
[5]: https://www.investopedia.com/terms/p/property-management.asp
[6]: https://multifamilyrefinance.com/apartment-investing-blog/multifamily-syndication#important
[7]: https://capital.thebamcompanies.com/
