Investment Property Tips & Advice

11 Rules Every Real Estate Investor Should Know to Maximize Profits and Minimize Risk

| 5 min. read

Real estate investing can yield impressive returns, when you know the rules.

In this post, we’ll explore the top 11 rules every real estate investor should know, whether it’s your first time investing in real estate or you’re already a pro. (And If you’re just getting started with real estate investment, we recommend also reading this article, which is a beginner’s guide to real estate investment.)

#1: Know Your Strategy

What’s most effective for individual investors is to focus on one real estate strategy at a time. 

Maybe you’re looking…

  • To buy just one property and build upon that first investment over several years, a strategy referred to as the BRRRR method
  • For a property that’s best for short-term rentals through Airbnb or VRBO.
  • For a more passive investment such as REITs.
  • To start flipping houses

Do your research to determine which strategy works best for you and then stick to it. Once you’ve focused on a specific strategy for a while, you may want to branch out into other real estate investments, but one at a time is the safest bet. 

#2: Know Your New Field

Once you’ve picked a strategy, it’s time to dive in deep. Geek out. Education is a key component of real estate investment. 

(This is one reason why it’s important to choose a single strategy first since it’s very difficult to attain a level of expertise on more than one at a time.)

Read real estate books. Research your local market. Niche down. If you’re able to partner with a property management company, take advantage of their expertise and expand your own knowledge quickly. 

You may even decide to get a real estate license or join a local group if you haven’t already.

#3: Know to Buy Low

You’ve likely heard it said before: Buy the least expensive house in the nicest neighborhood you can find. This strategy has proven time and time again to show the most profitable outcomes. In fact, realtors warn against buying the nicest house in the neighborhood since it more often than not turns into a bad long-term investment. 

Also, since the majority of first-time homeowners are looking to sell within a decade, a buy-low strategy means you’ll have an easier time turning a profit. Watch the real estate market and buy as low as you can. Just because you’re ready to enter the market doesn’t mean you should buy the first property you find. 

#4: Know Your Neighborhood

Knowing the local area is key to maximizing your profit as a real estate investor. What are the crime statistics? What are the local schools like? Are other investors flocking to this neighborhood? Why or why not? 

#5: Know Your Timeline

How long do you want to tie up your time and/or money in this investment? Is this a long-term investment where you serve as a landlord for the foreseeable future or are you merely flipping a house and selling it as soon as possible? Understand average timelines for your chosen strategy and plan your investments accordingly.  Having a clear timeline will ensure that you’re staying on track with your investment goals.

#6: Know Your Involvement

Another important element to successful real estate investing is your level of involvement in each project. Are you looking for an active investment that requires your daily or weekly feedback and input? Or do you prefer a passive investment you can drop cash into and see a return in a certain amount of time? Will you be working alone or on an investment team? Collaborating with others, especially if you’re new to real estate investment, can help you gain knowledge and experience more quickly than going it alone. 

#7: Know Local Rules and Regulations

Staying up to date on property management laws can be a challenge, especially if you are new to the area. However, if you don’t give proper attention to local statues and regulations, you can find yourself in a world of unexpected fines and warnings. Which, if not handled efficiently and directly, can lead to delays in renovations or other work your property needs. If you’re not in the know about how your neighborhood does things, you can easily hamstring yourself and damage neighbor relations. 

Local rules and regulations include things such as…

  • HOA association by-laws
  • Community board regulations
  • Zoning 
  • Noise ordinances
  • Fire and safety codes
  • Fair housing
  • Historical building renovation restrictions

Connecting with a local real estate lawyer or property management company can ensure you remain compliant with all federal, state, local, and neighborhood rules.

#8: Know That It’s Business, Not Personal

Investing is like any other business venture. You’ve got to keep emotions in check. It’s not a reasonable investment strategy to buy things simply based on aesthetic appeal. Make sure you’re finding good investments and have a solid plan underneath to support you. Don’t fall prey to beautiful architecture or landscaping! 

#9: Know How to Maximize Value

Especially if you’re planning to act as a landlord, property and neighborhood features such as security and amenities such as nearby entertainment or commuter rails can maximize the value of a property like nothing else. For single-family homes, keep an eye out for nearby amenities like parks or recreation centers. What’s the community like? Are there nearby restaurants or other resources? Those can be big selling points for tenants. 

In multifamily properties, find ways to improve or add parking areas, outdoor spaces, gyms, pools, or other amenities that suit your target resident population. If you’re venturing into commercial real estate, you can get creative with ways to collect ancillary income.

#10: Know Your Backup Plan

No one plans for things to go south, but from time to time they do. It's a good policy to prepare for the worst, even while working for the best outcome possible. 

What’s your backup plan for economic downturns or unexpected property vacancies?  If you hire a property manager, they can help you make the best of a difficult situation.

#11: Know How the Money Works

People think you have to be rich to invest in real estate. But the truth is that you can actually start investing with little to no cash upfront. While it’s important to be cautious, it’s also necessary to avoid a scarcity mentality. There is room for everyone who wants to make a profit through real estate investing to do so. Don’t sell yourself short. But make sure you’re applying a balanced view to everything you undertake. 

Finally, don’t get caught underwater. Don’t overextend your credit or spread yourself too thin across several projects. Remember, stick to one strategy at a time. 

No matter your experience in the real estate market, keep these 11 rules in mind as you begin your real estate investment journey or make any shifts in your current portfolio. They may help maximize profits and minimize risk while growing your wealth along the way. 

The ever-shifting world of real estate can be overwhelming and foreign to many investors. Luckily, property managers work well with new investors to help them turn a profit and achieve their investment goals. It’s an advantage to have the expertise, experience, and time-saving benefits that a property management company can bring, especially when you’re new to the real estate investment game.

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