Becoming a successful real estate investor requires being able to find good real estate investment deals and put them together. Your job is not to become a closing attorney, a management expert, or a repair person. Use professionals!
You must learn how to appraise and find the true value of real estate, this information will help you make better investment decisions. Realtors, appraisers, and banks determine what a property is worth by looking at comparable sales (usually three to five sales of similar property that has recently sold in the same neighbourhood). You must be able to do the same.
You may try to get a list of comparable prices of properties bought or sold within the neighbourhood that you plan to investing in by doing your own research or by asking active real estate investors in your area what the market is like, these will be really helpful in making a better investment decision.
What is the ideal market for investing?
There is no such thing as an ideal real estate market for investing. It tends to be more difficult to find bargains in rising markets, if the market keeps rising the probability of selling the property quickly for a large profit increases. In contrast, but when property values are falling, more bargains become available. The successful investor learns to find financially distressed home owners who have no choice but to sell for less than market value. They have lost their job or been suddenly transferred; they are divorcing; they been living beyond their income; the family has been overwhelmed with medical bills and, not uncommonly these days, their money has gone to support a drug habit.
You need to be able to assess the true value of properties based on when you expect to sell. Your purchase must be made at a good enough discount to allow for a profitable sale at a later date.
Leverage
Leverage is very important for investors because the less cash you put down on each property, the more properties you can buy. If the properties go up in value, your rate of return goes up. However if the properties go down in value and you have a lot of debt on the property, this can result in negative cash flow.
Since real estate is generally cyclical, negative cash flow is only a short-term problem and can be handled if you have other income or a cash reserves. This makes ‘Nothing down’ investing very helpful to protect against negative cash flow for high leverage investor.
If you are a long term real estate investor, leverage will work in your favor if the markets in which you invest appreciate in the long run and your income from the properties can pay for most of your monthly debt.
Strategies to limit risk
To limit risk, one must be well educated on the local real estate market by understanding the large scale trends from global down to national regional and specific neighbourhoods. Learn about target neighbourhoods with the help of some top real estate negotiators in your area along the way.
Real estate negotiators can help you interpret market indicators such as the average length of time houses have been on the market this month versus last month or last year and also the transacted value trends. With this information, it will help you to make better investment decisions.
Exit strategies
It is important not to guess the future of a local real estate market. You need to have a clear plan in mind when purchasing property. As a real estate investor you must know exactly how you will exit the property before you buy. And have a backup plan or two in case the first course of action doesn’t work. You must know your market and your plan before you begin to invest.
You make your profit when you buy! Never make a purchase until you’ve carefully determined exactly how you will get to your profit. If you hold it as a long term investment will the monthly rental income more than cover the monthly mortgage payment? Will you sell the deal to another investor for fast cash? Will you do some fix-up and sell the property for full value? Will you quickly trade it for a more desirable property? Have a plan before you buy.
In Real Estate Investment, determination and perseverance is the main success factor. If you are fully committed, you will be well on your way to financial independence.
If you are investing in real estate, you might be interested in 8 Common Mistakes Made by Property Investor.
「If this article is useful to you, feel free to buy me a coffee ☕」
Danny KO @ RPC
If this article is useful to you, feel free to buy me a coffee ☕
