Expert behind 10,000 deals reveals how to start small, build wealth and dodge costly mistakes

Article First Appears: https://www.dailymail.com/real-estate/article-16183799/real-estate-investing-wealth-tips-experts.html

The stock market may be notching all-time highs once again, but when investors like The Big Short’s Michael Burry start talking about the bubble popping ‘sooner than later’ I start wondering about alternative investment ideas.

And the one that always comes up first in conversation as a great way to diversify your portfolio is real estate. But if you’re not already wealthy, how can you realistically get started investing in property?

Here’s the truth: You don’t need a bottomless bank account to get started investing in real estate and get exposure to the potential for long-term growth in property values.

Nadia Evangelou, principal economist and director of real estate research at the National Association of Realtors, told the Daily Mail the combination of rental income and appreciation is part of what makes property attractive to long-term investors.

Appreciation helps leverage a smaller investment: Put $50,000 down on a $400,000 home and rising home values apply to the full $400,000 – not just your initial investment.

Evangelou says the typical American homeowner has built more than $230,000 in home equity over the past decade, although it’s worth always keeping in mind that property prices can fall – returns are never guaranteed.

But unlike buying a stock online, property comes with costs that must be carefully managed – mortgages, taxes, insurance and repairs offer plenty of opportunities to make an expensive mistake.

Jeff Lichtenstein, founder and broker of Echo Fine Properties in Florida, has been involved in more than 10,000 real estate transactions, says costs like these mean beginners should start small, keep things simple and limit how much they can lose while learning.

Here are his tips for getting into real estate without making the rookie mistakes that can eat into your returns.

1. Start with the home you actually live in

For a first-time investor, Lichtenstein says one of the smartest moves can be buying a home you plan to live in and improving it while you are there.

Rather than immediately taking on a separate rental or flip, you get somewhere to live while potentially adding value through relatively straightforward upgrades.

‘The best way to start investing in real estate is a home that the investor will be residing in and can fix up while they are living in it,’ Lichtenstein told us.

The approach can also reduce the potential downside because you are not immediately carrying a separate investment property while learning the ropes.

2. Keep the first property small

Forget purchasing a sprawling fixer-upper that requires a team of contractors and a mountain of cash.

Lichtenstein advises first-time investors to keep their first project small because mistakes are almost inevitable when you are learning.

‘A smaller property hedges the amount you can lose on a mistake,’ he says.

That could mean choosing a modest single-family home, condo, townhouse or smaller property that is manageable rather than stretching yourself to the limit.

3. Know your neighborhood inside out

A bargain on paper can quickly become a dud if you don’t understand who actually wants to buy or rent there.

Lichtenstein says understanding the local market is ‘critical’ and warns investors against simply copying the style or preferences they know from another part of the country.

Evangelou agrees that location should be a major consideration for would-be investors.

She recommends looking at areas where jobs and populations are growing, as these trends can help support demand for housing.

A beautiful property in the wrong location may not be much of an investment if there are few people willing to rent or buy it.

4. Don’t build your dream house – build what buyers want

One of Lichtenstein’s cautionary examples involved an investor who built a home in the style of a North Carolina farmhouse in South Florida.

The problem? There was not much of a local market for it.

The lesson is simple: your personal taste is not necessarily a selling point.

Before spending money on a renovation or new build, look at nearby properties that are actually selling and what buyers are paying for.

5. Think about who will buy it

A property can be beautifully renovated and still struggle to sell if it is aimed at the wrong audience.

Lichtenstein points to South Florida, where an investor might renovate a two-story home with the primary bedroom upstairs without considering that many older snowbirds may prefer – or require – easier single-level living.

The cheapest renovation is often the one you don’t need to redo later.

6. Work out every cost – not just the mortgage

One of the easiest ways for a beginner to fool themselves is to look at the mortgage payment and forget everything else.

Evangelou stresses that investors need to consider the full cost of owning a property, including property taxes, insurance, repairs, maintenance and HOA fees.

And those costs don’t disappear simply because a property is generating rent.

Investors should also factor in renovation and holding costs, as well as the possibility that a property could sit empty between tenants or take longer than expected to sell.

A deal that only works if everything goes perfectly may not be much of a deal at all.

7. Make the property help pay for itself

Rental income can be one of the major attractions of real estate, but investors don’t necessarily need to start with a large apartment building.

Evangelou says a duplex can provide one relatively accessible option: an investor could live in one unit while renting out the other.

There are other possibilities, too, such as renting out a room, basement or accessory dwelling unit, where local rules allow it.

The rental income can potentially help offset some of the property’s ongoing costs, although investors still need to account for vacancies, repairs and other expenses.

8. Learn the local buying season

Real estate is not just about location, location, location – timing matters, too.

In South Florida, Lichtenstein says January through June is the busiest part of the season, with January through April particularly important for snowbirds and April through June attracting more families.

An investor who puts a property on the market in July could potentially find themselves waiting months for the right buyer.

And every month spent waiting can mean more mortgage, insurance, maintenance and other carrying costs.

9. Build your contractor dream team

Even the most hands-on investor cannot do everything alone. Lichtenstein says having reliable contractors is key, particularly when renovations are involved.

‘It takes some time to build up a trusted team,’ he says.

Rather than simply choosing the cheapest quote, beginners should look for professionals with a strong track record who communicate clearly and can actually deliver the work on schedule.

Before signing on the dotted line, investors should also investigate potential repairs, permits and other issues that could turn a seemingly cheap property into an expensive one.

The goal is to discover the costly surprises before you own them – not after.

10. Think long term – or consider a real estate investment trust (REIT)

The biggest beginner mistake may be assuming real estate is an easy route to fast money.

Evangelou says investors should think of property as a long-term investment, where rental income, mortgage paydown and potential increases in property values can work together over time.

But prices can fall and property can be expensive, time-consuming and hands-on. For those who want exposure to real estate without buying a house or becoming a landlord, REITs, or REITs, offer another route.

Evangelou says REITs can be an option for people who want to invest in real estate with less money and without taking on the responsibilities of being a landlord.

Investors can buy shares rather than taking on an entire property themselves, although REITs come with their own risks and returns are not guaranteed.

The right option will depend on an investor’s finances, goals and tolerance for risk.

But for would-be landlords and flippers, Lichtenstein’s message is refreshingly straightforward: start small, know your market and don’t bet the house on your first attempt.

After all, the goal of a first property is not necessarily to become a millionaire overnight. It is to learn the game without paying an eye-watering tuition fee.

Jeff Lichtenstein, founder and broker of Echo Fine Properties in Florida, has been involved in more than 10,000 real estate transactions