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Hey everyone! If you're thinking about getting into the world of real estate investing, there are seven crucial rules you've gotta follow. Today we're going to be exporing the 7 key rules of real estate investing and why they matter. Let's break it down:
Rule number one: Location, location, location! This is the golden rule of real estate. Don't just pick any property randomly; do your research and make sure the area has potential for appreciation. You don't wanna end up with a property that has no long-term growth potential. Listen, Canada is an expensive market, especially if you are thinking about buying in BC or Ontario and most especially if you live near a major urban center like Vancouver or Toronto. Even Places like Victoria and the other population centers on the island are getting up there. For some, this means that real estate is getting too expensive, for others it means it's time to move to greener pastures. However, there's more to value than simply price. You see, the benefit of a cheaper market is that it's a lot easier to get into a property that can give you cashflow. Think of some smaller towns in Alberta or Saskatchewan. However, while those places may be cheaper, a low price and a greater potential for cashflow is where the story ends. If you really want to make it in the real estate game, you want to purchase properties that are also going to grow in value over time.
Rule number two: Get a good deal. Don't get ripped off! Check out similar properties in your area and make sure you're getting a good price. Look for properties that have a lot of potential for cash flow and equity. Avoid buying at market value with no room for improvement. Instead look for homes that can be improved with mostly aesthetic improvements. Think paint, new kitchens, new bathrooms, etc. However, be careful to avoid homes that have costly structural issues. You don't wanna be stuck with a money pit! What you want is an investment property that will help grow your wealth over time.
Rule number three: Have a solid plan. Before you put your money down, know what you're gonna do with that property. Are you gonna fix it up and sell it? Rent it out? Turn it into a vacation spot? Have an exit strategy in mind, and don't get too attached to your investment. Treat it like a business. Focus on the numbers and the potential to make money. A beautiful home in a great location could be more of a consumer product than a money maker. Whereas, an ugly old home with good bones in a decent area could have way more room to grow.
Rule number four: Know your risks. Look, every investment comes with risks, and real estate is no exception. Be aware of the risks involved and have a plan to manage them. For example, when it comes to financing consider getting a fixed-rate loan for a long-term investment to avoid getting slammed by future interest rate hikes. When it comes to renovations and improvements, count up the costs before you buy. If you're looking to buy a home that needs new floors, new kitchen cabinets, new paint, that all adds up in terms of labour and materials. Even if you are planning to do the work yourself, the cost in materials aren't cheap. Make sure you get quotes on every renovation cost before you write that offer. And just like how you should count the cost before you renovate, make sure you count the cost for everything else. How much is it going to cost you to buy (i.e. downpayment, inspections, legal fees, taxes etc.)? How much is it going to cost to remodel (i.e. labour, materials, mortgage with no rent while the home sits empty)? How much is it going to cost to own (i.e. mortgage, insurance, utilities, maintenance, taxes, strata fees)? If you get a clear picture of what your costs are at the outset, and how much you stand to make from renting or flipping, this will help you build a plan that minimizes risk along the way.
Rule number five: Have realistic expectations. Real estate is no get-rich-quick scheme. It takes time and hard work to see results. Don't expect to become a millionaire overnight. If you're in it for the long haul, you can build wealth over time. You need to go into any investment with your eyes wide open. While real estate values have risen for decades in this part of the world, that doesn't mean you're guaranteed to make money within a year or two. Although in the long-term real estate prices tend to go up, in the short-term, those values can go up, down, or sideways! A good rule of thumb is to plan for a 5-year time horizon. If you purchase a property with a plan to hold onto it for 5+ years, chances are you'll do well. If you're intention is to buy and then sell within the next 1-2 years, be careful. You're taking on a lot more risk, and there's no guarantee that the market will go your way in such a short period of time.
Rule number six: Have a big picture with laser-like focus. Real estate is a localized game. Forget about national trends; focus on specific areas where you see opportunities. While the national trend may give you a birds eye view of the macro, it doesn't dictate what's happening in your local market. Each market is different and has it's own prevailing trends, so it's important to know exactly what's going on in the market(s) you're most interested in. Also, keep in mind that
Every property is unique, so take the time to find the right deal that fits your vision.
Rule number seven: Seek positive cash flow. Cash is king! Prioritize cash flow when investing in real estate. In our local market that can be difficult to do. while there are cheaper markets that provide a much bigger cashflow opportunity, our market is geared more toward long-term appreciation. However, you don't want to buy a rental property if your renters won't cover the cost of your property. In the short-term, a negative cashflow investment property is more of a liability than an asset since it's actively taking money out of your pocket month-over-month. Although, it may pay off in the long-term, this kind of property increases your financial risk since it's actively draining your bank account instead of adding to it. Instead, What you want to look for is a rental that has at least a bit of excess cashflow. Enough to start building up a reserve in case you need to pay to fix a roof leak or broken water tank in the future. You have gotta have some reserves to cover unexpected expenses, and having some cashflow is the best way to do this. Unless you've got a rock-solid reason to subsidize someone else's rent, cash flow is an important goal.
Alright, there you have it! Follow these rules, and you'll be well on your way to crushing it in the real estate investing world. Get out there, do your homework, and make that money, my friends!
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I am a Victoria-based local realtor with eXp Realty. My commitment to honesty, integrity, loyalty, and hard work have been essential pillars for me because they drive a high standard of excellent service for my clients. Helping you realize your dream is my goal!
I service Vancouver Island, but my focus is on Victoria, Sooke, Saanich, Malahat, Shawnigan Lake, Cobble Hill, Duncan, and the rest of the Cowichan Valley.