Successful Real Estate Investing Tips for Beginners in 2023

Sharon Tseung 0:02
This is the digital nomad quest podcast with Sharon Tseung. teaching people how to build passive income, become financially free and design their best lives.

Real estate is a great way to build long term wealth. But for beginners, the journey can be very daunting. So hey guys, my name is Sharon Tseung. And my husband and I have invested in 34 units across the nation so far, and we’ve learned a lot along the way. We’ve had many years of experience, many mistakes were made, but a lot was learned. And that’s why I wanted to create this episode for you guys, so you guys can save some time and make sure you guys are prepared for any obstacles you might face. So in today’s episode, I want to provide actionable tips for you to get started with your real estate investment journey. So without further ado, let’s get into it. So tip number one, you want to make sure you educate yourself. Now you guys are already watching this episode. So I know you guys are already taking those first steps. There are ton of videos on my channel where you guys can learn from you guys can also check out my free class on how to start investing in real estate through the link below. But really taking the time to study videos, podcasts, books, courses can really jumpstart your journey. I would also say you guys should go out and start talking to people in your community. Learn more about the market that you’re trying to invest in and learn from other investors in your area. And before you jump into investing, it’s important that you know the four key benefits to real estate investing. So one is cashflow. cashflow is the amount of cash left over each month after all operating expenses have been paid, including mortgage utilities, repairs, vacancies, property management fees, this is a great benefit to investing in real estate because you will get some passive income if you do it right, which will help you towards financial freedom. Now I say passive income because if you hire a property management company, things can be very hands off, a lot of people think oh, it’s gonna be too much work. But really these companies will help you manage your tenants screen your tenants market, the property and things like that they’ll also handle any tenant issues. So it just makes everything a lot more hands off. The second benefit is debt pay down, which is the equity you build in the property every month from paying off the mortgage payments. So the beauty is your tenants are slowly paying off your property. And even though this might be just like a few $100 a month, this amount is going to add up quickly over time. Next is depreciation and tax benefits. So even though homes typically increase in value, the government lets you claim depreciation of the property over 27 and a half years, and then there’s appreciation and it’s a great way to make money in real estate, my net worth has gone up so much because of it. And if you look at historical data, the prices have risen steadily over the last 100 years, I’m sure a lot of you guys would have been so happy if you invested like 20 years ago or 30 years ago. But you can say the same thing. Now in 30 years, you’re probably going to be like wow, I wish I invested back then. So that’s why you guys should start looking into it now. So make sure you really understand these benefits, and then start educating yourself through different resources. So you are really prepared to invest in real estate. Tip number two is use the 1% rule, not all homes are going to be good investments, right. You don’t want to purchase a property where you are constantly losing money on it. So the 1% rule is a helpful guideline to help you determine if the property is going to generate positive cash flow, the rule basically states that the monthly rent should be at least 1% of the property’s purchase price. For example, if a property’s priced at $200,000, the monthly rent should be at least $2,000. But you guys need to understand that this is just a guideline, it doesn’t take into account all the expenses and those things can eat away at your profits. So aside from the 1% rule, you should definitely do a thorough analysis of the costs and your income. So what I like to do is kind of use the 1% rule as a quick first pass at looking at a property and then I do my due diligence. And the more you analyze properties, the more you get used to it and decide if things are good deal or not. So you’re going to take the estimate of rental income from looking at sites like Zillow and Craigslist, as well as rent ometer. And then you’re going to do some research on the associated costs, like your mortgage, your homeowners insurance, your property management fees, and things like that. You also want to allocate 10% to vacancies and repairs because most likely you’re going to come across issues. So you want to have some budget for that. Tip number three is house hacking. So house hacking is a great way for beginners to get started in real estate. The idea is you’re going to buy a property live in one part of it and then rent out the rest. And generally this applies to multifamily properties. So maybe you live in one unit of a four Plex, and then you rent out the other three units. But you can also do this room by room. So for example, my husband in the past, he rented out his different bedrooms and he was able to make up the cost of his mortgage so that he could live for free. Plus, when you’re living in your investment property. You can also get tax deductions for mortgage interest, property taxes and other expenses while you are living in that property, which is pretty cool. So if you’re trying to get started with that, you can also look into FHA loans which will allow you to put in 3.5% down in instead of the 20% down normally that you would need some lenders also offer like 5% for the downpayment, so you can shop around for different lenders and see if they have lower down payment options. As a homeowner, a lot of times they have these different programs for people who are buying houses that they’re going to actually live in house hacking is really powerful. Because after you do one house hack, you can move out of it right out that property and get it to be a cash flowing rental property, then do the exact same thing over and over again, we kind of did something similar where we left our Bay Area property to move to Texas and then we rented out that property as a furnished rental, we’re planning to rent out this property and perhaps travel the world. And it’s going to be a really exciting time, which I will talk more about in videos in the future. Tip number four is you want to understand the market. So the real estate market you choose can have a significant impact on your success, you want to make sure your market has appreciation potential, you don’t want to purchase in an area that is declining in home prices. So maybe it sounds good on paper, like Oh, I’m gonna get this much rent for this property. But if no one is moving to those areas, it is possible that that property can be worth less in the future. So you want to look for markets that have high demand for housing. And you can do this by examining population growth, job growth, income growth, and median home price growth, these different factors will give you a clearer picture of its potential. For example, a market with strong job growth is going to likely attract more people, which will increase the demand for housing. And then on the other hand, a market with high crime rates might deter potential renters or maybe you have tenants who constantly cause issues, things get broken into. So it’s gonna be a lot more of a hassle. So you want to make sure you study your market. Tip number five is you want to account for emergencies, repairs and vacancies. So investing involves more than just buying a property and collecting rent, there’s going to be issues that you’re going to need to account for. So one thing I tell everyone they should do is to have an emergency fund, and that’s usually going to be six months worth of your expenses saved up because you never know what’s going to happen. Even in your own life, maybe a medical emergency, your car breaks down something like that, that can wipe away a lot of money, you don’t want to spend all your money into real estate, you want to have some cash savings. So you’re okay, when I say six months worth of expenses, I want you to tally up your monthly living expenses, including your knees, your wants, and everything like that, as well as the future house that you want to invest in, you want to multiply your monthly expenses by six, and you should have that much saved. Aside from that you want to allocate around 10% of your rental income for repairs and vacancies. I already mentioned that earlier. But this is going to help you ensure that you have funds available whenever you need to make these repairs or when your property is vacant and you’re looking for a new tenant. Finally, it’s important to diversify your portfolio and not over leveraged. So diversification can really help spread risk while over leveraging which is taking on too much debt and put you in a bad financial position. So there are people who always advocate Oh, do 0% Down 0% Down on everything. That means you’re going to be borrowing so much money. And if anything happens, you could be in serious trouble. So yeah, some of these strategies are great for scaling or portfolio, you need to make sure you have peace of mind. So that’s how I operate. I always want to make sure that I’m not stressed, I’m taking care of myself, I don’t want to borrow too much money and get in too much debt. Even though it’s good debt, right? It’s growing my net worth, you want to make sure you’re still being safe with it. I also diversify all the time. So I don’t just have my net worth in real estate. I have a lot in Stocks ETFs index funds, I also have a high yield savings account. Even in real estate, I’m diversified in different markets, we invest in Texas, we invest in California, Georgia, and Florida. So if one market doesn’t do as well, maybe another one does better. And the great thing is when there was a market downturn, one of the assets might have done poorly, but the other asset might have done better. So that kind of bounces everything out where I’m not hit as hard when something goes wrong. So you want to make sure you diversify your investments. The last tip I’m going to leave you guys is you want to buy an uglier house in a nicer neighborhood. That sounds kind of counterintuitive, right? Well, my husband and I do now is we buy distressed properties. It’s been on the market for months. No one’s picking it up. That way. We’re feeling good that we are fixing up stuff that nobody wants. And we’re making these properties, liveable for tenants. But basically what I’m trying to say is your money goes a lot further when you are buying the ugly house in the nice neighborhood. You don’t want to get the best looking house in a bad neighborhood. Usually you’re going to be overpaying for that when you are looking for these ugly houses in the nice neighborhoods, though, as a beginner, you don’t want to look for a complete fixer upper because that might be more than you can handle. So maybe something with a little bit of cosmetic repair that you think you can handle. Maybe that’s the way to go. It took me many years before I started investing in these really messed up homes because it does take learning on how much certain things cost how much work goes into different things. So don’t bite off more than you can chew now. Hope you guys enjoyed this episode. I successful real estate investing tips for beginners real estate can be rewarding but it also can require a lot of careful planning consideration and can feel overwhelming. So if you educate yourself utilize the 1% rule consider house hacking understand your market account for emergencies, repairs vacancies and buy things at a good deal you can set yourself up for success so remember that when you’re doing all this you got to thoroughly research and do your due diligence but with these tips in mind, you are going to be well on your way.

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