Very often I meet people who are overwhelmed with the options, strategies, courses, and various directions that real estate investing can go. This article attempts to simplify the very complex world of real estate investing for new investors.
Before we dive in, let's address this basic, but not obvious question. When I talk about real estate investing, I'm talking about Buy and Hold Investing; In other words, purchasing property with the intention of keeping it for the long term to generate regular cash flow.
This is different from wholesaling, fix and flip investing, land development and the like.
Many people consider these activities investing, but for the purposes of this article, I will assume you are looking to create long term, passive income rather than another full time job.
I also assume you have another source of income, either from your job, self-employment, or business. There are certainly people who dedicate themselves to professional real estate investing and create firms for this purpose; This article is not for them.
This article is for individuals and families who want to round out other investment vehicles with the tried and true investment vehicle, Real Estate Assets. What portion of your investment portfolio should be real estate versus other asset classes is up to you, your Financial Advisors, CPA, and other professionals.
Now that we've established your real estate investing goals are simply monthly, passive cash flow + long term appreciation, the answer is easy:
You must have a strong grasp on what variables influence Cash Flow, Cash on Cash Return and Cap Rate, which are largely:
I recommend analyzing deals with the Conventional Buy and Hold approach to solidify your understanding. Once you have the hang of this analysis, you can explore different real estate investing strategies.
See YouTube Play list of live deal analysis HERE
Analyze at least 20 potential real estate deals, so you can begin to understand which deals you would offer on and which you would pass.
Questions to ask yourself while analyzing deals:
Pro Forma Income
After you are confident in your ability to underwrite your real estate deals, you'll want to determine your best financing option. Please read the next article in this series: Real Estate Financing | What are the Options?