This guide is very important on your journey as a real estate investor. Without a clear understanding of the principles found in this section, you run a greater risk of failure. In fact, if you only remember the information presented in one chapter of this book, we hope this is it. Let this be your first step toward a successful future in real estate investing.
In this article, we will cover the following topics:
- The importance of training in real estate investment.
- Real estate and math concepts
- Mentors, gurus and our investments.
- Overcome fear
- Paralysis by analysis
Real estate investing is not a get-rich-quick way. Just like any solid construction needs a solid foundation, the same is true when it comes to your financial education – a solid foundation is the key to a lasting business.
This guide, while not exhaustive on all aspects of real estate investing, will help build that foundation. We created it to serve as a first step in your real estate education, and as an introduction to the possibilities that exist within real estate investing. Below you will find a list of sources that provide education in real estate investment; be sure to consider each one before taking each step, as what works for some people may not work for others.
Sources of training in real estate investment
Books: Books are essential to obtain a real estate training and can be the utmost extensive learning technique for investors. In each of the major bookstores you will find a complete section on economics and investing, and some books dedicated specifically to real estate investing. Chances are that if there is a way to earn money through real estate a book has been written about it. However, if reading books is not within your preferences, there are other ways.
Online / Blogs: Blogs can be an incredible source of information. There are fantastic blogs written on every topic you can think of. The blog is written by people who manage or make a living from their real estate investments and it is certainly worth reviewing and learning from them. In it our expert collaborators share their best advice and suggestions.
Coach or mentor: perhaps the most powerful way to obtain a good training in any field of study is through a mentor, a person with whom to share doubts and who guides us along the learning path, and the same happens with real estate investments. While there are dozens of professional coaches or mentors who charge outrageous amounts for their advice, there are also plenty of potential mentors who will charge you as little as a cup of coffee to chat about real estate investing. Learning from those who have reached your goals before you is one of the most important steps you can take in your financial education.
People generally enjoy sharing what they know, and the most seasoned real estate investors are no different. By introducing yourself to an investor they know in the same area of operation, you will have the opportunity to learn from someone who knows your market and can ultimately become a future partner.
Now, why is it difficult to find a good real estate investment coach or mentor? Most self-proclaimed professionals are not in the business of real estate investing, but of coaching. That is, their income does not come from real estate investments but from the sales of their courses, and therefore they are not true experts in the field. And on the other hand, most real estate investors who are successful with their investments will not spend their time teaching or training others, unless they really enjoy this activity.
Real estate mathematics: basic concepts.
It is not necessary to learn to make derivatives or have a degree in mathematics to understand the necessary calculations applicable in real estate investing. In fact, most of the math you’ll need was seen in high school. This section will quickly tackle some of the basic concepts and mathematical formulas that you will need in your real estate investment career.
Income
An income is simply the amount of money you make from a property. This concept is perhaps the simplest of all: simply add the amount you receive from the rent collected and any additional charges that apply.
For example, you own a rental home. This property is rented for € 700, and the tenant also pays € 50 for the use of the garage.
His total income was € 750.
Income may also include late fees, supplies (if you pay and pass them on to the tenant), laundry and cleaning (especially on short-term leases), and any other additional amounts you receive.
Expenses
Simplifying to the maximum we will say that expenses are simply the things that cost you money. For example, if the home mortgage loan is € 500 per month, the community fees of € 50 per month, the IBI (Real Estate Tax) and the insurance of € 25 each, then the total of your expenses It is € 600 per month. We’ll break down the mortgage payment into principal and interest later, but for now let’s keep things simple.
Cash Flow.
Cash flow is the amount of money we have left at the end of each month after all expenses have been paid. To determine the cash flow you simply have to subtract the payments made from the amounts collected. Continuing with the previous example:
€ 750 collected.
€ 600 paid.
The cash flow for this example property is € 150 per month. Let’s look at some more mathematical concept.
Profitability or return on investment.
The profitability or return on investment (also known as ROI – return on investment) is a way of measuring the money you receive in relation to the money initially invested.
For example, if you invested € 1,000 and have earned € 100 after one year, you will have obtained a return on investment of 10% per year. In the same way, if you invested in the purchase of a property € 40,000 and have obtained € 3,200 during the year, the return on your investment will be 8%.
The formula to calculate the return on your investment is as follows:
ROI = (V1 – V0) / (V0)
Where V1 is the value of your investment at the end of the period (for example at the end of the year) and V0 is the initial value invested.
These concepts present the foundations on which the analysis of real estate opportunities and the other indicators of real estate investment is based.
Paralysis by analysis. It’s easy to get stuck in so-called paralysis by analysis. An endless situation of research, planning, evaluation of opportunities, more research, opportunities … In other words, it is reading books without implementing what you have learned, reading blogs without participating in any way and meeting investors without interacting with them. Analysis paralysis is usually caused by a fear that something is wrong.
It’s easy to convince yourself that you don’t know as much as you should, which can prevent you from taking action. But remember, you don’t need to know all the real estate buying techniques and you don’t need to become an expert on all investment possibilities. Focus on one investment area, become an expert in it, and then move on to another technique or strategy. We will cover the different real estate investment niches in the next chapter of this guide.
If you feel like you’re not completely ready to go, you probably never will unless you take action. Even after acquiring a good number of properties, it is normal to be uncertain about any aspect of the investment. However, this position will force you to learn the answers to those questions and to muster the strength to keep going.
When you are afraid it is much easier to spend time and money buying another course or reading about new real estate investments than to dive in and take action. Educate yourself, create your investment plan and take action. As you do, your confidence will increase and you will soon begin to feel good about this activity. You will start to feel like a real estate investor!
Conclusion
Starting your real estate investment career with a solid foundation is vital to your success. There are many different ways to learn and grow as an investor, so choose a path and start learning.
The next chapter will help you continue your education by teaching your business basics, including real estate niches and common strategies. Once you learn this, you are ready to start planning your real estate investment business.