Every person wants to be financially successful and obtain stability for the remainder of their life. What is a better symbol of stability than owning real estate? We constantly get a feed of real estate news through mass media and the success stories that go along with it.
Real estate is a volatile, high-risk endeavor, but chances are you already know that if you have decided to invest. To accurately assess all the risks and benefits involved you need to be well-versed in most important principles of real estate.
Additional insight into general accounting, property management, real estate finance, marketing and business administration will improve your chances considerably as well.
Real estate has a high barrier of entry
If you are fascinated by six-figure salaries and think of real estate as a quick way of getting to them, you may be in for a rude awakening.
Even though it is somewhat possible to get paid decent hourly rates, you will mostly rely on commissions as your primary source of income. The amount you make will, of course, be defined by other factors — the state of the market, housing situation, negotiation skills, etc.
This also means you will have to work extra hard to fit in everything into your personal schedule.
You will be required to work on your business; customers and deadlines will largely influence your working hours.
Initial recommendations regarding investment can be found in ancient writings; their main idea was to keep your belongings in three separate parts: cash, produce, and real estate.
Real estate as a symbol of status
Real estate may be the largest source of wealth for the richest people in the world. It is a major international trend as well. Investing in real estate can be very intimidating for a beginner since owning property and renting it out, comes with significant responsibilities and obligations. But, as a bonus, you get to be your own boss. This article aims to shed light on basic investing aptitude.
Some things to consider
Before you begin your adventure in real estate, you need to make sure you possess all the attributes that a good real estate agent needs to have.
Every beginner with rose-tinted glasses believes it will be possible to jumpstart a career and earn substantial income from the get-go. It is vital to throw out those silly notions as soon as possible.
It takes months, years even before you see opportunities for advancement. Your client base doesn’t grow overnight, neither does your mastery.
There are three capacities to fill in real estate — buyer, seller and intermediary (real estate broker/agent).
The broker, as an entity, comes in two varieties:
- a) as an individual
- b) as a company
When you are starting out, it’s important to find a good broker who will help you with finding customers.
Real estate can be very lucrative; it can lead you to sustained profitability, but it’s important to understand that everything regarding investments can be hazardous.
You need a real estate license
In general, real estate agents and real estate brokers are required by law to carry a real estate license to complete transactions.
And since you will most definitely be working with people all the time, some tactfulness and oratory finesse is obligatory. Language skills are vital in any business capacity.
Real estate requires investment analysis
2017 will not be much different from any other year, markets will still fluctuate, and trends will shift as always. The first thing you need to do is analyze profitability, assess the risk and ascertain the sale values of your undertaking.
In short, how well your investment performs and whether it’s suited to you and your goals, market research is vital.
Evaluate the asset you intend to invest in
As a rule of thumb, avoid competition with experienced investors.
As an investor, make it a personal goal to get as much additional information as possible before committing to a purchase, getting a second opinion from an experienced broker/agent is never a bad thing.
Sometimes, if the price of the transaction is cheap enough, investors tend to forget to consult and can make decisions that will prove to be problematic in the future. Uneducated decisions are the biggest obstacle in leading a business. You need to accurately assess the condition that is currently prevalent in the real estate market. Is it stagnating, falling or experiencing growth?
How long-term is your investment?
It is a long-term commitment, investing in real estate. If you are buying property for a short span of time (3 or so years), you are unlikely to get a substantial return, unless the local market for real estate is actively growing.
There are some other factors to consider — like buying from primary and secondary markets. If you intend to buy directly from the primary market — there may be possible delays, those will push the date the building enters a usable phase. In turn, it will lead to slow returns on investment.
By buying on the secondary (second-hand) market, it is possible to rent out faster. Hence the return may come much quicker.
If you pick the right moment (emerging market) to buy an apartment or an office complex, you will get to enjoy the additional profit. Your real estate value will rise if it’s located in a lucrative spot.
Your property will dictate your profits – renting out an apartment complex, or an office building will give out different returns, expenses will also be different.
How much time are you willing to spend working with real estate?
It is a typical stereotype that by investing in real estate, there’s nothing else that needs to be done anymore to make it grow.
A wrong sentiment; you’ll need to spend a lot of time, effort and money to make your property more sustainable. You will perform renovations and repairs, buying new equipment, managing expenses, and service fees. Plus you will need to interact with your clients on a constant basis.
Price range. Choosing the market segment
Slight differences are influenced by the market segment. Examine your financial capabilities; you need to have enough money to sustain your endeavor. It is better to use the money you possess personally, don’t take loans for investments.
Outline the total sum you wish to allocate into the asset.
The price range will limit your choice of location and market. Diversify, if possible.
What do you wish to buy? An apartment? Office? A house? A piece of land? This choice solely depends on you, your experience, money, means, desires, preferences.
Assuming you became a landlord, you begin renting out an apartment building to tenants.
The rent is on the tenants, but all the costs that go with maintaining the property become your responsibility. So, the biggest urge would be to set rent ridiculously high and drive the profits up. Wrong. Real estate is a long-term game of waiting. Charge sufficiently, but not high.
In time, the asset can grow in appreciation. This will lead to more valuable property. Think of it like stocks; they increase in value over time.
Real estate flipping
Another, rather popular technique. Buy low, sell high — the primary economic mantra.
This is the primary short-term solution for restless investors. Well, «short» in comparison to other methods.
Two varieties here:
1) The regular flip. Buying an undervalued building, holding it for several months on a very active market, then releasing it for profit,
2) The fix & flip. Buying an undervalued (often not), renovating it, then selling it for a profit.
Every method has its own merit.
Erase emotion from the business
Real estate is relentless; you need to remember that. Math needs to work, and numbers need to be truthful. There are always risks involved, no matter how prepared you are.
Get a team of professionals to help
Having a broker may not be enough. Help is essential when you start out, without proper guidance, you open yourself up to mistakes.
Robert Kiyosaki, the Rich Dad himself, has a valuable blog with tons of information in it. Wouldn’t hurt to give it a look.
Understand how location influences the value
Urban areas will always be a bit more desirable and profitable regarding cash flow. Consider factors that may affect the asset price. Proximity to popular locations or destinations is a welcome sign. Tiny neighborhoods have their distinct charm, though.
Set possible goals and terms
Approaching this endeavor with a clear head is vital. You won’t get a return on your initial investment in a fortnight, nor in a month.
Set grounded expectations and work on your plan. Don’t forget to track your expenses and ask your loved ones to do the same.
Source: We Buy Houses Anaheim