Real Estate Investment
Real estate investing involves the purchase, ownership, management, rental and/or sale of real estate for profit. Improvement of realty property as part of a real estate investment strategy is generally considered to be a sub-specialty of real estate investing called real estate development.
Real estate is an asset form with limited liquidity relative to other investments, it is also capital intensive (although capital may be gained through mortgage leverage) and is highly cash flow dependent. If these factors are not well understood and managed by the investor, real estate becomes a risky investment. The primary cause of investment failure for real estate is that the investor goes into negative cash flow for a period of time that is not sustainable, often forcing them to resell the property at a loss or go into insolvency.
Become a Real Estate Investor
- Develop a real estate investment goal. What do you want to achieve, and by when do you want to achieve it? What rate of return do you expect to want to receive on moneys you pull out of your home or bank account to purchase an investment property given the risk?
- Learn what returns you should look for, and how to compute them. You cannot succeed in music unless you can read music. Invest in a good real estate investing course or real estate investment software where you can learn how to run the returns and compute the formulas.
- Be wary of Get Rich schemes. There are many so-called gurus ready to teach you how to make millions with real estate investment property. But let logic be your guide; we believe that nobody who finds a gold mine publishes a map.
- Create a relationship with a real estate professional that knows the local real estate market and understands rental property. It will not advance your investment objectives to spend time with the “agent of the year” unless that person knows about investment property and is adequately prepared to help you correctly procure it. Find an agent that understands real estate investing.
What is the conclusion? That real estate investing is a business about owning a piece of ground that, when researched and purchased sensibly by impartial numbers and careful management, and with reasonable goals and caution, will likely be more valuable tomorrow than it is today.
Benefits of Real Estate Investments
* Real Estate Investing Has Tax Benefits
The government understands that real estate ownership and development is good for everyone. That’s why there are so many tax advantages to investing in real estate. Mortgage interest is deductible in most situations. In some cases, depending on how you finance and handle your real estate investments, even profits can be tax deductible. Sheltering your profits and deducting your expenses from your tax bill is just as good as putting money in your pocket.
* Investing in Real Estate Offers Significant Profit Potential
In a perfect world, all investments would return a profit. In case you haven’t noticed, we’re not living in that world. We are in a world where the supply of secure and affordable housing is dwindling, and the number of deteriorating homes is growing. This situation offers an outstanding opportunity for real estate investors who buy, renovate, and then sell or rent out properties. Investing in real estate easily returns profits in the 30-40 percent range, and has the potential to return much more.
* Real Estate Investing Diversifies Your Portfolio
Investing in real estate is a great way to diversify your financial portfolio. Investment opportunities abound in today’s world, and there’s no reason to pick just one. Some of them have great potential for profit, and for significant loss. You have to make your own financial decisions about which investments are right for you. But chances are it will be your real estate investments that keep you going when your riskier investments aren’t performing well.
* Investing in Real Estate Provides Income
Real estate investing gives you options. If you want to supplement or replace your monthly income, you can choose to rent out a property instead of selling it. A property manager can handle the rental for you, which means your only work for the month will be depositing the checks.
* Real Estate Investments Appreciate If you can count on anything, then you can count on your real estate investments increasing in value. Based on long-term, historical trends, you can expect real estate to appreciate about nine percent a year. And that’s if you do nothing at all. Just imagine what could happen if you buy a handyman special and do some renovation.
Risks & Rewards of Real Estate Investing
Reputation: A reputation is slow to build up and easy to ruin. For every cause there is an effect, and for every effect there is a reputation at stake. If you plan to invest in real estate for any length of time you will have some-sort of a reputation. Will it be held with honor and respect, as a name that people know to call when they are in need your services? Will your reputation be soiled from the beginning of your career; perhaps keeping you from ever truly succeeding or believing in your own abilities? Or will you never develop a reputation because of your inaction to ever pull the real estate trigger?
Credit: A few times in my real estate career I have been invited to joint venture with other real estate investors if I would become their “straw buyer.” A straw buyer is essentially a silent partner that gets paid a fee for signing his/her name and credit to successfully get approved for a loan and fund a real estate transaction. The going rate was $5,000 per loan at the time. I could make a quick and easy $5,000 simply by successfully getting approved and closing on an investment property for other investors to hold, maintain, pay for, or flip for a profit. But was it easy money? When the real estate bubble burst in Tampa back in 2007 I knew several newbie “straw buyers” that had their credit scores destroyed by other investors or joint venture partners that simply let the property slide into foreclosure instead of risking more of their own money.
Knowledge: Some of my best lessons I’ve learned have been from mistakes I have made while real estate investing. While in the negotiation process for a mobile home park I was very interested in purchasing I over negotiated and lost an already greatly negotiated deal. The investor who bought the mobile home park has since sold it for a significant five-figure profit. During the negotiation I was very conscious that the last counter offer made to me was excellent and more than fair; but what could it hurt to ask for a little more of a reduced price? This deal was seized by another, more seasoned investor that perhaps had already been through the lesson I was just learning. I soon internalized the quote, “You can’t steal in slow motion” as a life motto. Without this painful and costly lesson I would have missed my opportunity for other more profitable deals I have executed since this first negotiation blunder.
Time & Energy: Perhaps the most valuable of all our commodities is our personal time and energy. This entails the energy you spend finding your real estate deals and making unaccepted offers, the time you spend worrying what to do next, the time of cashing a $30,000 profit check and the lack of energy you will spend vacationing for a month with loved ones. Every one of us has 24 hours in every day. Between working, spending time with our families, and a few hours of sleep, we seldom feel like we have any more time for additional commitments. You will eventually be faced with this decision, “Do I risk my time and energy now, to try and attempt something that may make me and my family happy for the foreseeable future?” The choice is yours and there is no wrong answer.
The wonderful thing about a topic like Risk vs. Reward is that there are no right or wrong answers, just your opinion. After you perform your due diligence to know whether or not your potential real estate deal is a favorable one, the choice to pull the trigger and take the risk is yours alone. If you make a profit, society will call you a genius; if you fail then society . . . forget society; If you fail, then you will stand up and keep climbing your way to where you want to be.
Always keep in mind ALL that you truly have to risk, and gain in every real estate transaction.