Experience really is the best teacher and being able to learn from other’s experience has been a wonderful by product for Dan Lane on his Rental Income Podcast.
Recently I discussed with him what he’s learned from interviewing over 180 real estate investors and I want to share some of it by describing his:
Top 5 Things Learned from Interviewing Real Estate Investors
We are going to jump right into them in order.
1.) Why are you buying/investing?
I love this question because if you don’t know what your goal is going in then how can you game plan for it.
There are several different whys when investing in real estate. Such as: building cash flow, holding for appreciation, tax benefits and so on. No matter which reasons, decide what it is at the beginning so you can work toward it.
Forget about finding deals right away. First find a solid neighborhood to invest in and then find the deals in that area.
Areas that are seeing growing population or have solid schools – look for things like that.
The old adage of buying the worst home on a nice street still holds true and that is essentially what you’re doing by focusing on a neighborhood first.
3.) Distressed Properties
This plays right into buying the worst home on the street. What’s good about distressed properties is the opportunity to add value.
By renovating a property you add value, thus equity as opposed to paying full market price for something that is already finished.
4.) Budget for Repairs
This is one so many investors forget. You cannot estimate your net operating costs without including an allocation for maintenance expenses.
If you don’t include this in your calculations then you can easily see your expected cash flow disappear with just a couple repairs popping up.
How much to allocate is up for interpretation, but I personally budget 5% of rents for maintenance and another 5% for capital expenditures.
5.) Don’t Over Improve
Remember when we talked about adding value by renovating distressed properties? Well you need to have a budget for that and also know what your market calls for.
There is no point in getting stainless steel appliances and granite counter tops if the market doesn’t call for it.
You just won’t get the value back for the money and time spent. In the end real estate is a market comparable asset. The value of a property will generally stay within a range of properties its area.
To hear more about these top five things give the podcast a listen on the –>> podcast page
Don’t forget to check out Dan Lane’s Rental Income Podcast –>> Rental Income Podcast