Real estate investing is an effective way to increase cash flow, secure a financial future, maximize growth potential, and plan for retirement. But for some, just getting started can be an overwhelming experience. Director of Finance and Strategy Michael Stummer claims that rental properties are a proactive means to generate a passive income and a great way to diversify an investment portfolio. Similarly, real estate is often a hedge against inflation, and investing is a practical wealth building strategy. Michael Stummer provides his best tips for new investors to optimize their rate of return and avoid unnecessary costs.
First Things First – Understand Your Financial State
It’s imperative that individuals first have a sophisticated understanding of their financial state as this is fundamental to the success of an investment. Most new investors are seeking financial independence; however, navigating the market is a complex endeavor. Your course of action and portfolio diversification will depend on your current situation and long-term financial objectives. It’s essential that individuals perform the necessary research in order to make an educated investment decision.
Find Your Investment Vehicle
Michael Stummer claims that the rental market is often a wise investment choice for inexperienced investors. These types of properties are often optimal choices as they are a hedge against inflation and appreciate in value. Take the time to look at different property types and ascertain what investment will deliver the highest return. University cities or towns are often a perfect start as a student are always in need of housing.
However, Michael also reminds individuals to consider various other factors when planning such as property taxes, homeowner’s association fees, insurance, operating expenses, and renovation costs.
Once you have a comprehensive understanding of your investment margins, you can execute a wealth building strategy.
Establish Your Real Estate Investing Strategy
If you’re at the point of survival or stability, Michael Stummer states that you’ll want to adopt a strategy that will allow you to learn about the industry, avoid losses, and make a little extra income on the side. Here is how you can get started:
- Rent out bedrooms in your current home
- Work under another real estate investor by helping them find good deals and learning from their expertise
- Start off as a leasing agent to help landlords find tenants and vice versa
However, if you’re already saving up, you’ll want to increase your savings as much as possible by doing the following:
- Start house flipping with your current residence (renovating a home and selling it for profit)
- Live in a more affordable home for a few years and rent it out when you buy another one
- Purchase a home with an apartment section to rent
For investors ready to grow, Michael Stummer suggests taking your savings and boosting your net worth by doing the following:
- House flipping (with homes other than the one you live in)
- Purchase 3 rental properties, wait, then sell 2 to pay off debt on your remaining property
- Pay cash for new properties to avoid creating more debt
And finally, if your assets have grown enough, it’s time to use strategies that will allow you to create maximum income:
- Purchase passive assets (high-quality residential rentals that you won’t need to renovate, commercial rentals, etc)
- Start loaning to other investors
- Diversify your portfolio – don’t stick to a single strategy!
Wrapping it Up – Common Mistakes To Avoid
According to Michael Stummer, new players in real estate investing often make the following mistakes – beware!
- Not managing your cash flow
- Not researching risks for potential assets, you want to purchase
- Being in a hurry to purchase your first property
- Lacking patience – real estate investing is a waiting game
The final mistake is key – don’t forget the importance of understanding the financial aspect of real estate. It’s always a good idea to seek help from a qualified financial advisor before starting your real estate journey.