Whether you’re newer to real estate or consider yourself a veteran, there’s always more to learn.
In an effort to help you expand your knowledge on the industry, the New York Post chatted with three real estate experts to get the low-down on eight tips for experienced investors.
What did we consider an “experienced investor” for this article? At the very least, the individual has dabbled in real estate and wants to further level up — they probably own at least one profitable real estate investment.
“Commercial real estate investing is dominated by institutions. One reason is that investing in rental properties requires an amount of capital (money to spend) that many small investors lack,” said Paul Fiorilla, director of US Research at Yardi Matrix, a commercial real estate data and research company. “Another is that small investors – known in the industry as ‘retail’ investors – historically have a high failure rate.”
No matter how many properties you may own, we’re all human — so you’re bound to make mistakes. But here are eight tips to help you best avoid making them.
1. Understand The Local Market’s Trajectory
“Nothing lasts forever, so don’t just focus on the current amenities of a neighborhood and city when considering investment. Look to how it might change,” said Igor Popov chief economist at Apartment List. “Are recent movers or newly-opened businesses markedly different from established families and businesses? If so, the market may change quickly, and designing your own forecast will keep you from getting caught off guard.”
Fiorilla also mentioned the importance of investors having expertise in the segment they’re investing in.
“Obtaining market data is vital. Property investors should have a thorough knowledge of the potential pitfalls [and] understand property management,” Fiorilla said. “Be well-versed in fundamental supply, demand factors and the economic drivers of the submarket.”
“This past year has underscored that markets can change rapidly. When considering investment options, take time to understand the markets within your community,” added Bob Pinnegar, president & CEO of the National Apartment Association. “In New York, for instance, market conditions vary not just by zip code, but by street – understanding these changes will help you make more beneficial investment decisions.”
2. Make Sure You Have The Proper Technology
“As competition grows fiercer and regulations more complex, being able to offer tenants options such as online rent payments or online property tours is no longer a luxury,” Fiorilla said. “It is critical to utilize the efficiency afforded by property management software systems such as Yardi Breeze, which is geared toward small property owners.”
3. Plan For Cycles In The Market
“As markets change, you’ll want to take time to understand how market cycles impact your investment strategy,” Pinnegar said. “Take time to consider the best times to buy (when the market goes up), the best times to sell (when the market goes down) and even whether you can hold onto properties in a market downturn. Considering future market conditions can help guide your decisions.”
“Will your property become more or less desirable if remote work accelerates? If climate change accelerates? Expectations get factored into sale prices, and expectations change quickly,” Popov added.
4. Develop A Perspective On What You Think Is Overpriced Or Underpriced
“The best investment stops being a good investment when you pay too much for it, so it helps to think through which amenities you think are overvalued or undervalued,” Popov said. “Deals are hard to come by in today’s market, but they arise when you disagree with the market (and you happen to be right). Explore property dis-amenities that you think renters or future buyers ultimately won’t care about.”
Fiorilla also stressed the importance of knowing your investment options.
“Small investors need not go it alone,” he said. “They should explore the rapidly growing crowdfunding industry, which enables retail investors to pool together capital in syndicates that are led by experienced managers.”
5. Understand The Wave Of Local Regulations
“Most investors are tuned into the tax implications of real estate investment, but as housing policy takes center stage at the state and local level, the likelihood that policy changes affect your return and risk grows,” Popov explained. “Research current proposals and understand the way the tide is headed in the local market to predict whether or not your investment has upside or downside risk related to new ordinances and regulations.”
6. Make Sure You Have Enough Capital
“Just having enough capital to buy a rental property is not enough. Investors need to have capital set aside for contingencies such as mortgage reserves, building repairs and property upgrades for improving energy efficiency and catering to evolving tenant demand,” Fiorilla said.
7. Consider Risk Management
“As you continue investing, be sure to consider all aspects of applicable risk management, something of growing importance in the investment sphere. For instance, give thought to how your ownership is structured,” Pinnegar said. “Can you protect your liabilities if something happens at one of your properties?
“As another example, be sure to check your insurance policies. Are you covered with what may seem like insignificant policies — flood insurance or cyber insurance? These seemingly minor decisions can have incredible impacts on your portfolio and investment success long term.”
8. Be Patient And Structure Your Holdings For The Future
“Make sure to give thought to your long-term plans. For instance, do you plan to sell all of your properties at some point? Do you plan to pass them along as generational wealth? Giving these decisions consideration now will help increase the success of your investments down the road,” Pinnegar said.
Success takes time. “Although that return can be increased with judicious use of leverage and rent growth, it is important to understand that success takes time, management expertise, and good fortune,” Fiorilla said.
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