It’s an exciting time for an investor, looking at the local market to get your first property. It’s important not to let the feeling of exhilaration overtake you. Keeping your emotions in check and doing your due diligence will help you gauge a property objectively.
Without that balance in place, you’ll likely get emotionally attached to a property and end up buying it without adequately considering its salability or the market demand. If you’re looking to invest in your first property, there are a few essential considerations you need to be aware of. Fifteen members of Forbes Real Estate Council cover what these elements are, and why they’re so crucial to locating and closing an excellent first investment property.
Forbes Real Estate Council members detail what considerations investors should have when taking on their first property.
Photos courtesy of the individual members.
1. Always Have A Plan
One thing to remember is to have a plan. A successful long- or short-term plan is the key to it being a positive investment. A complete market analysis and significant guidance from real estate professionals are essential. Also, investors should make sure they understand detailed expenses along with unexpected expenses. – John Tashtchian, The Agency
2. Keep Your Investment Goal In Mind
Always keep the goal for the investment in mind and how it fits within an overall strategy. This is probably the most important aspect of disciplined investing. Whether an investment goes up or down, cash flow, appreciation and hedge are simply directions that make evaluation impossible without a goal in mind. Highly predictable performance decisions require “slow” brain thinking. – Mark Chung, Verdigris
Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?
3. Don’t Develop An Emotional Connection
Clearly define the investment objectives and return parameters prior to looking at deals, and use that as part of a firm, objective screening process. Don’t develop an emotional connection to a property that leads to you breaking your own rules on risk and return thresholds. – Gabriel Silverstein, SVN|Angelic
4. Hire A Seasoned Realtor
Buying your first investment property? Is it a diamond in the rough or a house of cards? It’s important to hire a seasoned realtor to show you the hottest areas, provide comparables of nearby properties and write a contract for purchase compliant with your state laws. Hiring a licensed inspector to point out flaws for a few hundred dollars can save you thousands and help with your ROI. – Angela Yaun, Day Realty Group
5. Find The Right Property Manager
Investors should do as much due diligence in finding the right property manager as they do on the actual asset itself. Good investments can go bad very quickly if you don’t make a good choice for this critical part of your strategy. – Kyle Karker, American Real PM
6. Start Early
Start early and be consistent. This is my mantra in any investing, real estate or otherwise. Taking that first step is more important than seeing the entire staircase. Getting that snowball rolling early will pay off way more in the end because you’re compounding that knowledge and equity into a giant avalanche of success later. – Jason Hsiao, Shaw Investments
7. Have An Exit Strategy
One of the greatest things investors forget to ask themselves is, “What is my exit strategy?” How long do you intend to stay in the property? Are you there for a school system where your children will be out in four years? Are you there for a job that has an end date? Once these questions are clearer in your own mind, you will get a better idea of the type of property you want. – Michael Valdes, eXp Realty
8. Build A Team Around You
Build a team of experts around you that can guide and share with you the experience you do not have just yet. This should include a broker, attorney, CPA and more. Ask questions and know what your end goal is with purchasing this property. Are you looking for a long-term investment or a short-term one? – Galit Ventura-Rozen, Commercial Professionals, Inc
9. Carefully Vet Your Advisers
The advisers you choose to support your investment activities are as important as the real estate itself. Taking the time to thoroughly vet accounting, legal and leasing help, for example, is a critical step that often gets bypassed in the excitement of acquiring an asset. This can have consequences that remain hidden for years until a tax, lease or occupancy issue comes to light. – Todd Laurie, Baceline Investments
10. Be Mindful Of Renovation Costs
Be mindful of renovation costs and your time. While most first-time investors think they are handy and can do a lot of work themselves, it’s easy to forget about the time value of money. Also, the sooner you can complete a renovation, the sooner you will be able to get the property rented and cash flow starting to come in. – Jason Duff, Small Nation
11. Use Cash To Buy
Make sure to save between $100,000 and $200,000 in cold hard cash. When you use cash, you can buy quickly and cheaply. Remember that sellers don’t like long delays with closings, so be patient, wait for the right deal to come along and make sure it’s in the right area. Then, offer a lowball offer with a quick cash close and you should be able to snag a bargain. – Engelo Rumora, List’n Sell Realty
12. Don’t Force A Deal
Don’t try to force a deal. It’s tempting to try and make a lead into a deal when you’re getting started, but make sure to remember to stick to your buying criteria. Your money is made on the purchase at the end of the transaction. Forcing a deal can potentially lead to an expensive mistake down the road if you’re not careful. – Melissa Johnson, webuyhousessanantoniotx.com
13. Keep The Investment Analysis Simple
Keep your investment analysis simple and don’t try to predict the future. Focus on how the subject property and the properties around it have been performing. Focus on historical cash flow and spend extra time reviewing the upkeep of the property. Like buying a used car, the previous owner may have foregone proper maintenance to save more cash—leaving you to pick up the bill. – Zachariah Rosenberg, TapCap
14. Look At Opportunity Zones
The government has designated Opportunity Zones in every state for redevelopment and investment. For first-time investors, properties in these areas should appreciate greatly as the areas get redeveloped. Don’t invest in OZ funds per se, but rather buy properties in or near OZ areas for long-term gains. See irs.gov for OZ FAQs and opportunitydb.com for maps. – Jon Larrance, Perry & Co. Realtors
15. Focus On Quality Neighborhoods
Investors looking for their first property should focus on quality neighborhoods—not on low prices. Cheap properties are cheap for a reason and that is not a prudent way to invest in real estate. – Marco Santarelli, Norada Real Estate Investments