When you invest in real estate, you’ll work with appraisers, often solicit their opinions, and of course, rely on their appraisals for your loan.

But never accept an appraiser’s opinion as the final word. To protect yourself against inaccurate appraisals, you must understand that some loan reps routinely tell their appraisers the value they need to make a deal work. In return, appraisers know that if they fail to give the right figure, the loan rep might select another. In other words, the appraisal might not accurately reflect market value for the investment real estate you want to buy.

Here’s the deal.

Let’s say you’re trying to purchase a ten-unit apartment complex for $800,000 and hope to get an 80 percent LTV loan, or $640,000. To verify that your sales price of $800,000 equals or exceeds market value, the lender will order an appraisal. If the appraisal report comes back with a figure that’s less than $800,000, the lender will use the lesser amount to calculate an 80 percent LTV loan. If it’s at or more than your purchase price you’ll undoubtedly get the loan you want, but should you construe that you’ve paid the right price? Well, not necessarily.

Just because a lender’s appraiser comes up with a market value estimate that matches your purchase price, don’t jump to the conclusion that the appraisal is accurate. You still must accept responsibility for your offering price.

Here’s the bottom line. When you invest in real estate, don’t naively sit back and expect the bank appraiser to do your work for you; be sure that you determine for yourself the market value of the property based on the numbers that you run and compile.

This is the follow up to our last post, Starter’s Guide for Real Estate Investing Beginners, Pt.1, where you can the first three of six real estate investment tips for beginner real estate investors.

In this part, I’ll be giving you three more tips (continuing the number sequence thus starting with number 4).

So whether you’re new to real estate investing, about to become a real estate investor, wondering how real estate investment works, or just want more information about the nuances of investing in real estate, this one’s for you.

4. Run the Numbers

Folks, I can’t stress enough the importance of running the property’s cash flow, rates of return, and profitability numbers. Remember, real estate investing is a business, you are the CEO, and the object is to make money. You’ve got to know what you’re buying before you buy, especially if you’re choosing between several investment opportunities and trying to determine which would be the most profitable.

Foremost, I would recommend that you invest in real estate investment software. Why, because a real estate investment software program will enable you to run your own numbers and create your own analysis reports without having to trust another. It’s best to discover for yourself the investment property’s cash flow and rates of return; and the more prepared you are to conduct your own analysis, and the broader your understanding of real estate investing nuances, the less likely you will inadvertently fall victim to the wiles of someone who has little concern about how you spend your money.

As the CEO of your own real estate investing business, make it your first managerial decision. A few hundred dollars investment for quality real estate software can easily make or save you thousands of dollars later, so it’s worth every penny.

If you choose not to invest in real estate investment software, at the very least, be sure to work with a real estate professional that has made that investment, and can run, present, and discuss those numbers with you.

5. Develop a Relationship with a Qualified Real Estate Professional

Having been a real estate professional myself for the past twenty-five years, I can assure you that working with a qualified real estate professional is a great way for beginners to get started with rental property investing. An astute real estate professional can acquaint you with local market conditions, recommend a property that meets your investing objectives, and discuss strengths and weaknesses about specific property performance.

Just be sure to work with a “qualified” real estate person.

Because someone has a license to sell real estate, or maybe even be top producer at selling houses doesn’t make them qualified to help you with real estate investment property. Select someone who understands investment real estate; has a firm grip on key financial measures inherent to real estate investing; knows how to measure profitability and rate of return; has the ability to present the concise data needed for wise investment decisions; and, well, perhaps most importantly, shows a genuine interest in how you spend your money.

The last thing you want to do is to get involved with a real estate agent that would throw you under the bus just to make a commission.

Work with a real estate professional you can partner with who understands real estate investment property. How can you tell? Ask them about cap rates, cash-on-cash return, and some of the other rates of return, and request an APOD or Proforma Income Statement. If they stand there looking at you like a deer into the headlights of a car, do yourself a favor and find another agent.

6. Start Investing

Yes, you’ll ultimately have to start real estate investing. But now that you have some insight into real estate investment, things you can do to become a more prudent real estate investor, and perhaps a couple of things to watch out for so you can avoid making a bad real estate investment and losing money, all that remains if for you to get started.

Here’s to your success.

This article will acquaint anyone just getting started in real estate investing with some basic elements about investing in rental properties. It’s not rocket science, but it does cover six real estate investing tips beginners can use to launch their real estate investing career and hit the ground running.

In this first installment, Starter’s Guide for Real Estate Investing Beginners, Part 1, we’ll discuss the first three tips.

1. Develop the Correct Attitude

To stand a chance of succeeding at real estate investing, foremost, you must understand that real estate investment is a business, and from that very moment you decide you want to jump in and buy your first income property, you become the CEO of that business.

As your first order of business, then, it’s crucial to develop the correct mind-set about investment real estate and be able to make this distinction between buying a home and investing in real estate:

You buy a home to live and raise a family. You buy real estate investment property to pay for the home, live comfortably, and raise your family in style.

Here’s the problem.

Beginning investors too often set out to purchase income property incorrectly thinking that investment properties are a home. That it must provide good curb appeal, exciting amenities, desirable floor plans, and a desirable area to live. This is not the case with income-producing property, though. Remember, real estate investing is a business, and the object it to make money.

Unfortunately, real estate investors that fail to make this distinction between home and investment can end up suffering unfavorable results.

Some, for instance, wrongly buy an investment property mistaking beauty for performance and then never make a dime from their investment, or even worse, they actually lose money on the investment. Conversely, some miss opportunities to make real money because an income property lacks luster. They walk away because the thought of living in the rental property is unimaginable, and because the property isn’t beautiful enough, they make the decision not to invest on no other grounds but the fact that they wouldn’t want to live in the property themselves.

Beginning real estate investors must bear in mind that investing in real estate is not to provide you with a place to live; chances are that you will never live inside one of the units you purchase. You are buying investment real estate to make money, period.

As one very successful real estate investor once said, “Only women are beautiful, what are the numbers?” You will not succeed at real estate investing until you acknowledge that beauty is only skin-deep and what counts most is the property’s financial performance.

2. Develop Meaningful Objectives

A meaningful set of objectives that helps frame your investment strategy is one of the most important elements of successful investing. Just be realistic. We may all desire to make millions of dollars from real estate investing, but entertaining that fantasy is not the same as expressing a specific goal or goals and a method on how to achieve it. Here are some suggestions.

• How much cash are you willing to invest comfortably?
• What rate of return are you hoping to generate?
• How long do you plan to own the property?
• What amount of your own effort can you afford to contribute to the day-to-day operation of running the property? And so on…

3. Develop Market Research

If you’re new to real estate investing, we’ll assume that you know very little about prices for rental properties in your local market. If true, that you haven’t had much exposure to what’s been selling, then you must do some research. Before you take too many steps forward or make any investment decision, learn as much as possible about local income property values, rental rents, and occupancy rates. The more you know about investment real estate prices and trends in your area, the better prepared you are to recognize a good (or bad) deal when you see it. Here are some helpful resources you might want to consider.

• A local appraiser
• The county tax assessor
• A qualified local real estate professional
• A local property management company

To be Continued

In our next installment, we’ll cover three more real estate investment tips you don’t want to miss if you’re a new real estate investor about to start real estate investing.