Council Post: Six Real Estate Investing Rules For Beginners (2024)

Founder of FinancialWellnessMD, BioWise Capital, and Smart Block Capital.

Real estate investing can be incredibly rewarding, both professionally and personally. However, while it comes with immense rewards, it also carries significant risks. Making the wrong decisions, having the wrong motivation and not knowing the basics could not only derail your efforts, but also result in devastating consequences.

The good news is that real estate investing is not rocket science. Through my own experiences investing in real estate and consulting others, I've learned that following a few basic rules can enable you to make more savvy choices. While these rules do not negate the risks involved with investing in real estate, they do help to mitigate them.

1. Set goals.

First and foremost, you need to get into the real estate investing game with goals. Where do you want to go? What do you want to do? Moreover, those goals must be actionable and measurable. “I want to make money” is simply too nebulous to be a viable goal. Why does it matter?

Your goals help you create a road map to success. They guide you from where you are now to where you want to be. Without goals, you’re flying blind, not knowing where you’re going or being able to track your successes along the way.

So, what kinds of goals should you set? The sky’s the limit, but a few I've observed are common among investors include:

• The types of properties you'd like to own.

• The number of properties you'd like to own per year.

• The annual cash flow amount you'd like to see.

2. Know the basics.

Although seemingly anyone can invest money in real estate, uninformed investments too often become dismal failures. In my experience, the “sheer luck” stories of hapless investors making a chance investment and hitting it big are generally few and far between (and often false).

To mitigate risk and give you the best chance of success, you need to learn the basics of real estate investing. For instance, how do you determine whether a property will be profitable? How will you screen your tenants? What’s the exit strategy from the investment?

Educate yourself first, and then start investing. Experience can be a great teacher, but you can spare yourself some hard lessons by starting with a firm foundation.

3. Consider working with a mentor.

In the past, I found mentorship hard to come by in the real estate investment space. But I've observed through my time consulting that things have changed thanks to digital technology. The internet is a great connector, allowing you to work with and learn from some of the most successful people in the industry.

A mentor can provide many benefits, including helping you learn best practices, avoid mistakes and missteps, and build your success faster than what might have been possible on your own. However, be wary of self-proclaimed gurus and experts. Do your due diligence and research any potential mentor before making a decision.

4. Remember: location, location, location.

The age-old real estate mantra “location, location, location” is truer than you know. More than anything else, understand that you need to ensure you’re buying a property in the right location. From my perspective, this the key to success, regardless of property type or how good the deal might be.

What does “good” mean, though? While the actual metrics will vary from location to location, some of the factors you’ll need to consider include the following:

• Is the area growing? Growth is critical for future profitability. If it’s contracting, rethink your decision. Is it stagnating? If so, dig deeper before investing.

• What’s the demographic mix like? I recommend looking for areas that are growing demographically. I consider hom*ogenous areas to be riskier prospects.

• What does the future hold? While you likely don’t have a crystal ball, you can get an idea of what the future holds by doing your research. Will public transit be expanding? Are there incentives to attract new businesses? Is there a growth driver, such as an exodus from a nearby urban area?

5. Build your team.

No one is an island unto themselves. Yes, you can pursue real estate investing solo, but understand that no real estate investor succeeds without the help of others in the long run. So, who is on your side? It’s not the property seller. You also can’t count on future tenants. So, who holds you up and helps you succeed?

It’s the team that you put together. Ideally, you’ll form the core of your real estate team before you get started and then augment and expand as you learn more and make connections with good people. Who should be on that team, though?

Each team’s makeup will differ based on specific factors, but you should consider having a real estate attorney and a general contractor on yours. You will also benefit from making connections with mortgage brokers and skilled financial advisors. A CPA and a real estate agent are also important additions.

6. Keep cash flowing.

The single most important thing for successful real estate investing is this: Keep cash flowing. It doesn’t matter how much you’re worth if all that capital is locked up. The most successful real estate investor can fail if they’re unable to access cash when necessary.

Start small and ramp up over time. Learn the ropes as you go, and make sure that there’s always a flow of cash so you can continue to build your investment business. I believe the key to conquering the industry is loan amortization and appreciation powering equity growth.

Charting A Course For Success

Real estate investing offers the opportunity to control your own destiny. However, it is not without risk. Use the tips above to make informed decisions and chart a course for success.

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