How to Succeed at Real Estate Investing
By Alex Pupkin
It's not that real estate investing is rocket science, but many newcomers to the game make mistakes. While it would be impossible to account for every eventuality to ensure successful investment, the following three guidelines/strategies will help you to avoid failure. An understanding of the basics elements in combination with knowledge of how to maximize your return on investment as well as some fundamental principles of investment will help you get the most from investing.
The Basics
Real estate investment essentially involves three stages: acquisition, ownership, and sale of property. Even if you never rent or lease a property, a real estate investment can be profitable if you sell for more than you purchase. Generally speaking, real estate investments are favourable to stock investments as you can leverage these properties. Therefore, by investing in this, you have the opportunity to utilize other investors to improve your rate of return while also accessing much larger investments. In addition, once you factor in the potential to rent or lease these properties, you have the advantage of using this cash flow to pay your mortgage; an option that is not available with stock investments.
There are many other benefits to real estate investment. You can gain equity in assets as they appreciate in value, but you also have a physical property to which you can prove ownership. That ownership provides an element of control and security while allowing you to develop a more diversified portfolio. Still, it is also important to remember that with any investment, there are risks. Property values can drop in the short term and this type of investment requires a lot of management. However, many of the most successful investors rely on real estate as a source of wealth, a fact that motivates many individuals to consider it for investment.
Return on Investment
There are many ways that real estate can provide you with returns on your investment. The first obvious return is the cash flow generated from renting or leasing a property. As such, you want to do your best to calculate how much cash flow is likely to be generated from a property. In addition, buildings and properties tend to appreciate over time; the growth in value of a property is one of the main types of return that generates interest from investors. And for the savvier investor, these properties can be developed to provide an exponentially higher return on their initial investment.
Understand the Properties
Real estate investors are not home owners, they are business people. Before investing in a property, learn as much as you can and don't be overly focused on amenities, curb appeal, floor plans or other aspects that might attract home owners. Instead, consider the numbers. Develop an investment goal and create meaningful objectives, making sure to research your market carefully. The more you know about a property and the neighbourhood it is in, the more likely you are to understand the potential for the area to grow and for the property to appreciate or generate cash flow.
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