How to Succeed as a First-Time Investor

In 2022, it’s easier than ever to be a first-time real estate investor. Technological advances are producing accurate property values. Competition is bringing real estate commissions down. And a booming market is driving home prices through the roof.

But just because we’re in a flourishing market, that doesn’t mean success is guaranteed. First-time investors can stumble out of the gate — if their confidence exceeds their expertise, if they haven’t done their homework, and if they don’t have experienced industry professionals sharing wisdom about how the game is played.

Read on for some tried-and-true tips on how to succeed as a first-time real estate investor!

Look for a Great Mentor

Network with real estate professionals you admire, and don’t be shy about asking them for advice. You’ll be surprised at how readily most investors will share their expertise.

While you can learn the basics from a book or a course, a mentor can help you avoid mistakes, navigate the emotional ups and downs of the process, and tackle the steep learning curve of your first investment. On top of that, they can also recommend trustworthy contractors, lawyers, home inspectors, and other personnel you’ll need.

Establish Criteria and Standards — and Stick to Them

Before you even look at a potential deal, establish what you want out of it, what a win would look like for you, and what your budget is. Going out there with goals and limits already in mind will protect you from being swayed by hard sells or audacious claims.

Once you’ve got that mindset, look at every deal skeptically. Think ruthlessly about profitability and measures like the capitalization rate, cash-on-cash return, net yield, and the rate of return. Run your numbers, then run them again, and don’t settle for a deal that’s “good enough” just because you want to get your first investment in the books.

Structure for Success

You’ll be doing almost all the investment-related work yourself, at least in the beginning. Even if you hire a property manager, you’ll still be responsible for things like vetting future investments, keeping your books, marketing your properties, and possibly screening tenants.

It can be tough to stay on top of all these tasks, especially if this is your first time wearing all these hats. Establish processes and structures so you can manage your workflow, and address everything that needs attention. Handling things as they come up can often lead to important matters falling through the cracks, especially for first-timers!

Cultivate a Long-Term Mindset

In the long term, real estate is a safer and more lucrative investment than almost anything else, but it can take time for that profitability to manifest. Real estate isn’t the same as “fast-twitch” investments like stocks or crypto, which can start making money in days or weeks. It may be years before your real estate investment even hits the break-even point.

Most investments also don’t require you to spend money on them for expenses like maintenance and repairs. It’s common for a real estate investment to need expensive repairs very early on in a new ownership before it’s even approached profitability. This can be extremely alarming to a first-time investor, who might worry they’ve bought into a “money pit.” But don’t lose perspective — real estate comes with carrying costs. Sure, it may sting to write a check for a new roof when you’ve only owned the property for a couple months, but if you’ve done your due diligence, it shouldn’t damage your property’s long-term prospects

Treat Your Investment as a Business, Not a Personal Project

Don’t treat your first real estate investment as just another side gig or hobby for evenings and weekends. You should treat your investments like a business, which includes securing the legal protections of a business: liability insurance, incorporation, or using a trust, among other options.

This should also be reflected in your interactions with vendors, tenants, and sellers. Always appear professional.

Don’t Forget — It’s All About the Tenant

Many first-time investors who purchase a rental property forget that buying is a means, not an end. That is, once you buy a rental property, you now have to sell it to prospective tenants. That’s going to take the same skills as selling any other product would. You have to understand the market dynamics, discover who your potential customers are, figure out what they want, and learn how to effectively communicate with them.

Once you have a stable, quality tenant in your home, you still have to maintain a service-based mindset. Tasks like performing repairs or maintenance for your tenants and communicating with them to resolve problems aren’t a nuisance; they’re primary responsibilities of the position you’ve taken on. If you don’t have the time or mental bandwidth to handle this work, you should consider hiring a professional property manager.

However, Don’t Take Hiring a Property Manager Lightly

Many first-time investors, intimidated by the prospect of being a landlord, hire a property manager to look after their very first property. What they might forget is that property managers are expensive and generally charge around 10% of rents collected. That can take a big bite out of your profits.

You shouldn’t hire a property manager just to handle work that you don’t want to, or don’t know how to handle. Generally, you should hire one after you’ve accumulated multiple properties, and your workload has increased substantially, or if you’re looking to streamline your operation to bring down rents and labor.

Have Contingencies in Place

Let us be the first ones to tell you: Your investments won’t always go according to plan. Maybe the market wobbles and your property value stagnates, or maybe you just can’t find a tenant for a few months. You should be prepared, financially and psychologically, for these unexpected occurrences.

Keeping your expectations reasonable will help you weather the storm, and keep your stress and anxiety under control. And a healthy emergency fund will help you cover the mortgage if your investment hits a dry spell. If you’re renting, you could also consider exploring short-term rentals through a platform like Airbnb, which can be tremendously lucrative.