11 tips from a multimillionaire broker and investor on timing the market and getting the job done right.
After listening to all the podcasts and reading a swath of books, I knew I was ready to get started in real estate investment. I’d been working as a real estate agent for a bit over a year now and felt equipped to take the first step towards a passive income.
At Oxford Property Group, a real estate brokerage dealing with residential, commercial, and investment properties, I’d been working closely alongside one of the top brokers with over fifteen years in industry experience. When he found out I wanted to get started in real estate investment, he stopped me from jumping in the shark pool and gave me a quick run down on his guidelines for real estate investment. For privacy purposes, I won’t disclose his name — just his advice.
I knew the market wasn’t right. But I wanted to believe the timing was right because I was too excited. Don’t get started right now. The market isn’t right. You will make money by waiting.
The market isn’t right. You will make money by waiting.
The real estate market has been steadily on the decline. It hasn’t been tanking with the volatility of the stock market, but nevertheless, declining. From this steady downhill slope, sellers are looking to offload their properties. But since the market hasn’t fallen dramatically yet, many developers are keeping prices high while they still can in hopes of getting the profit they initially expected.
Additionally, he emphasized the uncertainty regarding Trump’s tax code. Although the policy is written, people still don’t know exactly how their finances and investments will be impacted. The April tax deadline will be a key time for reevaluating balance sheets, as people will finally have solid numbers on the personal impact of Trump’s new tax code.
My broker has a cool multi-million sitting on the sidelines. Waiting. He recommends sticking it out a year, or at the very least, until the April tax deadline has passed to see where the market goes. He foresees a continuing decline in prices and may jump back in the market around late 2019 or early 2020.
2. Start small.
Buy a one or two bedroom condo. It’s easy to manage and cheaper than a house. Also, the condo itself will have more publicity than a single family house, so it may be easier to find a tenant. If possible, pick a condo in an area where you know people, so you can rent the unit to a friend.
3. Target college towns.
When investing in apartments and condos, college towns are the way to go. They create a consistent demand and as long as you get the parents to be a guarantor, it won’t matter if the kid bails out on rent.
Additionally, college students have less expectations for apartments. This can save costs on upgrade-related repairs.
4. Renting to people you know is good.
This is under the premise that you’ll share social circles with the person. A renter is much less likely to bail on rent or leave the apartment damaged if they know they’ll see you at church on Sunday. People are more respectful of objects, including apartments, when they know who it belongs to.
A common counter-argument is that a friend will take advantage of knowing their landlord and use it as a free pass to throw loud parties or not worry about paying rent on time. However, if they do end up being a horrible tenant and bail on rent, odds are, you can contact someone you both mutually know, like their mom or sibling.
“If you don’t pay your rent, I’ll just tell your mom.”
5. Be on the board of your condo association.
If you invest in a condo, get on the board. He learned more about properties and condos being on his condo board than some years working as a real estate broker. It’ll be an invaluable experience for learning about the market and investment. You don’t have to do it for more than one year though, unless you want to. One year of learning will suffice.
6. Pick Texas. Not New York City.
This advice applies to most over-hyped markets. Don’t invest in your own city if the market isn’t right, and pick a place with lower prices and taxes, like Texas.
Although NYC may seem glamorous, it’s ridiculously expensive and often overpriced. Tons of units are currently being developed in NYC, and for places like Manhattan, where demand isn’t rising much, there’s sure to be a supply surplus and decrease in price. In particular, luxury condos have not been selling well in NYC.
Several of my broker’s investment friends cite Texas as the best place to get started in real estate investment. Growth is good, it’s landlord friendly, and has low taxes. However, be careful in markets becoming over-priced, like Dallas and Austin.
7. Get someone to inspect the property.
Even if a property is out of state, still get someone to inspect it. Key aspects to watch for include termites, leaks, uneven flooring, broken appliances, electrical fixings, and more. Include the cost of an inspector in the investment calculations, unless you have a family member in the area who’s willing to do it for you.
8. Don’t listen to people who aren’t experienced real estate investors.
Work with people who know what they’re doing. Don’t listen to people who don’t have real estate investment experience — including the average Real Estate Agent. I was about to meet with another agent at my firm to discuss a real estate investment partnership. My broker intervened, however, and cut off the partnership.
Later, he privately discussed with me that the real estate agent I was meeting with only had residential rental and sales experience. Real estate investment was a different beast. The other agent didn’t know any more than I did, and so my broker suggested if I really wanted to get started right now, I could get help from him, and I wouldn’t have to share profits like with the other agent. Look for real estate agents who are investor-friendly and know the terms and markets.
9. Be aware of closing costs and repairs
When determining the down-payment for a property to determine return-on-investment, include closing costs and repairs. Of course, there’s utilities and property management while the property is up and running, however closing costs and repairs are generally expenses that will happen when you first acquire the property. Closing costs include loan fees, title insurance, document prep, escrow fees, recording fees, and agent commission.
10. Get a second, experienced opinion.
If you know someone who has successfully invested in real estate, get them to take a second look at your property. My broker is swamped with work. Even so, he offered to give up his time to guide me through some properties once I wanted to get started investing in real estate.
Although not everyone happens to work at a real estate brokerage, anyone can start building connections in the real estate industry. Reach out to real estate brokers with investment experience that have fairly new careers. They’re more likely than seasoned brokers to give you time, particularly if you’re interested in buying.
Connecting with brokers is also beneficial for gaining access to exclusive, off-market listings. Off-market deals mean less competition and a lower price, so potentially higher return-on-investment.
11. It’s easier than you think to scale.
Once the first deal is done, the snowball starts building.
Don’t be worried about starting late. My broker knows plenty of people who have scaled from one unit to several dozen in one year. Once the first deal is done, the snowball starts rolling. You may hit a few rocks or pick up some pee-colored snow along the way, but hey, that’s investment. It always comes with a few risks.
Liked this article? Check out Should you invest in gold before the next recession? or The Consequences of Lifestyle Inflation.