Steps To Prepare For Your First Real Estate Investment And Common Mistakes To Avoid

How would your financial future look different if you owned a portfolio of income-producing properties, all started with your first investment?

The hardest property to get is your first one, but diving in before you should can set you up for financial failure rather than freedom.

Step-By-Step To Getting Started

1. Education and research

Overpaying for a property just to get in the game can be a killer. Make sure you know all the variables to consider going into a purchase such as what interest rates are, home prices, and other factors to look for in properties when surveying the market.

2. Financial planning

You don’t need to hire a financial planner to do this for you, but you should have a clear understanding of your budget and balance sheet. Meaning, make sure you can afford the mortgage payment of a potential real estate investment regardless of if it creates any income. 

Additionally, having a plan for financing the purchase will be key. Research the types of mortgages you can potentially get to know which best suits your situation.

3. Assemble a team

You don’t need to go at it alone. In fact, many real estate investors don’t. Critical relationships you’ll want to build include a Realtor, Mortgage Broker, Attorney, Financial Planner, and CPA to name a few. 

Using experiences professionals in each respective area can be critical to avoid mistakes you otherwise may have made going at it yourself.

4. Finding potential properties

Use resources like the MLS, Zillow, or even newspapers to find listings. Another benefit to using a realtor is they may have knowledge of off-market properties to invest in. Your network will come in clutch here.

5. Run the numbers

Once you have a property, next run the numbers on if it is worth it or not. The primary focus with real estate investing should be that the income produced by the rents outweigh the costs of maintaining the property so you have a positive cash flow.

Common Mistakes To Avoid

- Overestimating income and underestimating expenses

It can be exciting to buy a property and you’re probably eager to get in the game. Don’t look through rose-colored glasses for every property you look at. I’m not saying be a negative person but it will help you tremendously to be skeptical. When you get a good investment in front of you, you will know.

- Neglecting inspections

Do not waive inspection EVER. This will be your chance to not only uncover any issues with the property but also to get money off the purchasing price. Issues found in the inspection can give you an argument to secure the property at a lower price or save you from making a horrible investment.

- Poor property management

If you don’t have the bandwidth to manage the property yourself, you should seek out property management companies to keep tenants happy. 

- Ignoring tenant screening

Don’t just take on anybody. References for tenants aren’t exactly guarantees for a good tenant, but do some due diligence. The last thing you want is someone coming in and trashing your property.

Setting You Up For Success

Taking these factors into account when searching for your first property can help put you on the path to success put you far ahead of the average beginner investor. Remember you don’t need to do it alone, more research is better, and due diligence is never a bad thing.
 

This article is for general information only. It doesn't constitute financial advice. Everyone's  financial situation is unique so consult with a financial professional who understands your  individual circumstances. Investment decisions should be based on an individual's specific  financial needs, goals, and risk profile. Past performance is not an indicator of future results. All  investments involve risk including possible loss of principal. The value of real estate can be  impacted by changes in economic conditions, supply and demand, interest rates, property tax  rates, regulatory limitations on rents, zoning laws, and operating expenses.  

Armando Sallavanti is a registered representative of and offers securities and investment advisory services through MML Investors Services, LLC. Member SIPC (www.sipc.org). Supervisory Office: 2 Bala Plaza, Ste 901, Bala Cynwyd, PA 19004. Tel: 610.766.3000. 

Licensed for insurance in: AZ, CA, CT, DE, FL, IN, MD, NJ, NY, PA, TX, UT CA Insurance Lic. # 4148846; domiciled in PA 

Registered for securities in: AZ, DE, FL, HI, IN, MD, MN, NC, NJ, NY, PA, TX