Real Estate Investing: 3 Secrets to Beating the Average Investor

While you could argue that real estate investing offers the same, or even more, opportunities for generational wealth creation as stock investing, it's impossible to argue that there is the same amount of focused literature about it. Even classic real estate investing texts offer mostly 20,000-foot views of the industry.

This can make successful real estate investing seem like it's only for the few who can apprentice under a master investor. The truth is real estate investing is often simpler than it seems from the outside looking in. Definitely not easy -- it's a lot of work -- but follow the secrets below, and you'll be on the path to success.

A plumber fixing a sink.

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Use a property manager

At first glance, property managers may seem like a waste of money. They work hard once a year to recruit new tenants and then collect a portion of your rent every month, even if there are no complaints from the tenant.

If you're renting half of a duplex and live in the other half or moved in with a partner and are renting the condo you were living in, that may be correct. But it will be a lot harder to level up without a property manager.

In real estate investing, you need to level up. Each additional property you purchase contributes cash flow that can be used to buy the next or cover expenses when you have vacancies.

The landlord work that can seem fun and easy when you have one good tenant becomes impossible when you have seven tenants living under five HOAs with six dogs and a parrot between them.

You have to keep track of which tenants have pets and a pet deposit. You have to track all the individual HOA rules and enforce them on the tenants. And in a worst-case scenario, you have to evict the tenants or even show up to small claims court to battle them.

Doing the landlord work is a good way to save money when you start out, but you'll likely need to farm it out to grow.

Bide your time

Once you get a taste of the real estate investing life, it can be hard to hold back. If your first few properties generate cash flow with easy tenants, you may assume that's how it will always be and overpay for a bad property.

Like any kind of investing, real estate investing is about the long-term fundamentals and value. If you overpay for a property, you could set your leveling-up plan back years. While it's important to keep the momentum going, you have to be particular with your purchases. Focus on properties that can produce a high internal rate of return (IRR) with current market rents.

One way to do this is by living in houses before you rent them. You can secure a lower fixed rate and longer term on a residential mortgage than on a non-owner-occupied commercial loan. You'll have to stay in the house for at least a year, so you can take that time to research the market and wait for the best opportunity. When you pounce, you'll have lower debt obligations on the last house to make your IRR higher.

Find a niche

"The riches are in the niches." The popular e-commerce saying applies to real estate as well. If you stick your finger into every pie, you stray from your circle of competence and often end up overpaying for properties.

Your niche could be a geographical area or a property type. Maybe you grew up in and still live in the same town 40 years later. You know every street, tree, and c-store. It isn't a stretch to become an expert on the real estate as well. That way, when new properties come available, you can do your research and make an offer quickly.

Maybe your niche is offices/warehouses. Commercial real estate investing is a little more involved than residential, but if your career was in logistics, you should have a leg up on the competition.

Becoming an expert in a niche not only gives you the opportunity to find and buy properties at a value but also lets you skip the bad properties. If you're an expert on offices/warehouses and an apartment complex comes up for sale, why bid? Leave it up to the apartment experts. If you win the bid, it means you're paying more than the experts think the place should go for.

Beat the (Main) Street

Stock investors put a lot of thought into beating Wall Street. Having a true edge in stock investing is close to impossible. You're better off just focusing on quality companies for long-term investments.

Beating Main Street at real estate investing is different. Over time, you can learn your local market pretty well and apply the tenets described here. Leave the admin work to a property manager, only buy when the numbers make sense, and focus on your niche.