The fundamentals for investing in residential real estate are the same as any other type of investment. Money is invested by buying an asset which is held for some length of time, and then cashed out for a profit. One major difference in residential real estate investing is that investors have a far more active role in managing the asset than other types of investment, such as stocks, commodities, or bonds. The truth be told, real estate investors have the unique managerial job of a being a landlord and must be skilled in the ways of property management.

Residential real estate investment begins with the objective of investing money in a safe asset that will someday provide a respectable return and a decent cash flow over the term that the investment is held. In real estate, cash flow comes in monthly in the form of rent. Unlike other forms of investment, however, real estate investors must be astute business people, capable of working with people from all walks of life, coping with government regulation and taxation, able to supervise a workforce, set goals and priorities, and have a sound understanding of the principles of business management.

Investing in residential real estate can be a minefield for the inexperienced investor. There a literally millions of investment properties available everywhere, ranging from conventional home sales and foreclosed homes, to for-sale-by-owner and distressed properties. While real estate investing is frequently touted as a quick and easy way to riches, it is far, far more than that.  Successful real estate investing is a lifetime of overcoming obstacles, solving problems, and finding creative ways to solve remarkable challenges that appear overwhelming at first.

The first challenge for the astute real estate investor is to discover which property, regardless of its status, offers the best investment opportunity within a very large field of possibilities. The second challenge is the business end of becoming a successful property manager afterwards. Both of these challenges are life changing journeys, but each can be surmounted through continuous education in the art and practice of real estate investing and property management.

When searching for best investment property, it is absolutely essential to thoroughly research every aspect of the property’s history when culling the list of potential investments down until only the best property remains. Considerations include location, condition, economic development and demographic trends, home resale value trends, and employment trends. Property specific considerations include its condition, including structure, age, appliances and fixtures, and neighborhood. Another consideration is its occupancy history, which includes the form of ownership and tenancy if it is currently a rental unit.

Financing the purchase of an investment property is no less a challenge. Working with real estate agents, sellers, banker, insurance companies and government agencies can be an education in bureaucracy, corruption, and greed. The best advice for inexperienced investors is buyer beware, keep your eyes open, be diligent in decision making and listen carefully to what is being said and not said. Creative financing opportunities that benefit both the buyer and the seller are sometimes the most profitable way to purchase a property and make more money at the selling end.

After purchasing an investment property, the investor is suddenly transformed into a landlord. Residential real estate needs renters in order to create cash flow; otherwise it is just another expense, and a hefty one at that. Every vacant unit is a form of negative cash flow in terms of lost rent as taxes, insurance, utilities and maintenance bills still have to be paid.

The investor, now turned property manager, is faced with the challenge of finding renters, complying with state and local regulations, administering leases and rental agreements, screening potential tenants, managing tenant-landlord relationships, and maintaining the property over the term of the investment. These are just a few of the managerial responsibilities of becoming a real estate investor/landlord. For many investors, the business of being a landlord is so overwhelming that they prefer to hire a property management company.

Sometimes investors are not interested in becoming landlords, preferring to buy and “flip” a property for a quick profit. Flipping a property means buying a distressed property, rehabilitating it as inexpensively as possible, and then selling it quickly for a profit that covers the cost of rehabilitation. This strategy has proven successful in many a hot real estate market, but its success depends upon the investor’s ability to sell the property quickly for a much higher market price. As with any form of real estate investing, the investor must be diligent when considering which property to buy.

For many residential real estate investors, the ability to be in control of making and managing an investment while turning a profit is reason enough to enter into this lucrative market. Whatever the reason is, however, successful residential real estate investing requires having a sound financial education and the managerial discipline of a landlord in order to be successful over the long term.

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