Real Estate Investment Success Principles

Assess your Financial health

Make sure you're financially fit before investing in rental properties. Pay particular attention to your monthly budget and make sure that you have adequate insurance coverage. Most successful real estate investors build their real estate investment portfolio through saving money and then gradually buying properties over the years.

Focus on Small Residential Houses

Focus on residential properties in the beginning. Residential property is an attractive investment and is easier to understand, purchase and manage than most other types of property. Among residential property options, your best bets are small apartment buildings and single-family homes. Attached housing makes more sense for investors who don't want to deal with building maintenance and security issues. Attached-housing prices tend to perform best in developed urban environments.

Build your Team

Have your real estate team in place before you begin your serious property searching. Line up a real estate agent, loan officer, tax adviser, lawyer and so on early because the real estate investor with the best resources can identify the properties to ignore and those worthy of careful consideration. Move quickly - the speed at which you can close a transaction is an advantage in any type of market.
Look for Development Areas

Look for properties in the path of progress: Areas where new development or redevelopment is heading. The best real estate investment properties are ones that are well located and physically sound but cosmetically challenged and poorly managed.

Make Down Payment

Making at least a 25-percent down payment provides access to the best financing terms. You can make smaller down payments, but you often pay a much higher interest rate, loan fees and private mortgage insurance. Leverage, or the use of the lenders' money to cover the majority of your acquisition costs, can boost your rates of return. But too much leverage can be dangerous if the rental market turns and your debt expenses are high.

Keep the Size of the Deal Small and Simple

As the size and complexity of the deal increases, financing options become less attractive. The financing options for larger apartment buildings (five or more units), commercial, retail, industrial and raw land generally require more money down and/or higher rates and loan fees. But more advanced real estate investors enjoy higher overall returns plus the benefits of easier management and stability from long-term tenants.

Consider Real Estate Trust

For low entry costs, consider real estate investment trusts . You can buy these exchange-traded securities (or REIT focused mutual funds) .

Value depends on  Location
 
"Location, location, value." Location is important, but so too is good value for your investment . Owning real estate in up-and-coming areas with new development or renovated properties enhances finding and keeping good tenants and leads to greater returns. Another great opportunity is properties in great locations but with extensive deferred maintenance, especially aesthetic issues that can be inexpensively addressed.

Make Investment in Nearby or easily accessible location 

Make real estate investments close by. Buy property within two hour away by your favorite mode of transportation. Venture further only when you really know another real estate market and regularly find yourself there for other reasons or you've found an excellent property manager.

Don't rely on seller

Don't rely on the seller's numbers when evaluating a property's potential. Speak directly with the seller to determine the history of the property and their motivation for selling. But, don't rely on historic operating results offered by the seller or broker. Develop your own numbers through evaluating the property with a team of qualified professionals who are specialists in the physical and fiscal management of real estate.

Consider the return 

Bottom line: Real estate professionals, and you, should value a property based on the projected Net Operating Income (NOI). Project the NOI preferably for next few years. Projecting the NOI is time consuming and requires a lot of experience, especially if you plan property changes to increase income and/or reduce expenses.