The money-spinning real estate industry rewards thrifty investors with bounteous returns. It is not an industry for extravagant
spenders and reckless investors, but an industry for penny-wise spenders and practical investors. While it demands that investors take the greatest risks with maximum potential returns, it also obligates them to spend their money with tact, vigilance and foresight. Therefore, whether you are investing in short-term opportunities or long-term property, you should play by the rules of good sense and frugality. Investing in property will often require huge sums of money, but you will get
colossal profits in return if you obey the following money-saving principles for the real estate industry.
Rule 1: Learn What the Industry’s Insiders Know
You can only play a game that you have mastered so well. Therefore, before you even think of splashing your money on property, you need to take your time to know how the industry operates. For instance, you have to know the key companies and expert agents involved in the local industry. You must also understand how the credit environment operates and master the rules of getting low-interest rate loans for buying property. In learning to act as a professional investor, you should know how to establish a refined exit strategy, how to assess risks and how to look out for damaged property that needs repair. You will only save money if you can navigate the property market seamlessly and dictate what you can and what you cannot buy.
Rule 2: Familiarize Yourself with Key Real Estate Metrics
There are three common metrics that you should know about before you can assess real estate property and get the best deals. Net operating income (NOI) is usually calculated by subtracting the total first year’s operating expenses from the total gross operating income for the first year. The goal of this calculation is to check whether you will get a positive net operating income. Prudent investors ignore all property deals that come with negative NOI. Secondly, the capitalization rate (cap rate) should be used to establish the net present value of future cash flow or profits (capitalization of earnings). Thirdly, the cash-on-cash metric must be used by every prudent investor to determine the sum of money that should be invested in order to purchase a property. Comparing first-year performances of competing or alternative properties, good cash-on-cash allows the real estate investor to make profits while paying for the mortgage.
Rule 3: Mapping out an Effective Plan of Action
Every shrewd real estate investor must define clear parameters for property deals. You must not only know the minimum and maximum amounts you can comfortably pay for any property, but also learn to calculate the amounts you expect to make in return. Similarly, you should know how to find motivated sellers who can offer you property deals at prices below the market value. A motivated seller will be readily willing to negotiate and to offer the best deal quickly. Equally, you should consistently study the neighborhood by talking to other property owners, looking for home vacancies and visiting open houses. To be a successful real estate investor, you must also learn to set realistic investment goals and to follow your plans strictly. Moreover, you should be an adaptable investor who can use the internet, hire bird dogs and use classified ads regularly to find the best properties.
Rule 4: Asking Sellers to Take Up Some Costs
When you seek to buy a property, you will not only pay for the home but will also pay the closing costs and other related fees. As a shrewd buyer, you should not accept to pay all the extra costs. Instead, you should negotiate with the seller to pay the closing costs as a pre-condition for buying the property. You may also insist that the property owner should renovate the property, re-paint the home or repair the roof before you can pay for it. While many sellers will not be ready to take up some costs, you will most likely have them cover some costs and help you save some money. Equally, you should opt for loans that are not against seller financing.
Rule 5: Starting Out as Owner-Occupant
The strategy implies that you buy a home to live in and then to rent it out later. There are many financing options that will ask for lower down payments for residential property, and this means that you can buy a home just to enjoy the lower rates.
While this strategy will expose you to frequent moves because you will be living in a home for a year then moving into another for one year, you can easily save loads of money if you can manage the inconveniences it can bring to your family.
Rule 6: Getting a Real Estate Agent License
Making the unprecedented move of getting a real estate agent license can allow you to get better deals and save tons of cash. As a real estate agent, you will save thousands in commissions for each transaction you make. For example, if you purchase a single investment property worth $100,000, you will save up to $3,000 on commission by acting as your own agent. Furthermore, you will have unrestricted access to top MLS listings, get valuable contacts who can inform you of amazing property deals, and reduce the amount you give out as tax deductions. You will spend between $300 and $1000 to train as an agent and around $1,600 to become licensed, but the rewards can be incredibly remarkable.