Becoming a successful real estate investor requires being able to find good real estate investment deals and then putting them together Your job is not to become a closing attorney, a management expert, or a repair person. Use professionals!
Assess, Assess, Assess.
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. Generally, comparing three to five sales of similar property that have recently sold in the same neighborhood give investors a good starting point. You must be able to do the same.
Ask For Help
Getting a list of comparable prices of properties bought or sold (and when it sold) for the neighborhood you need information about, and asking active real estate investors in your area what the market is like will be helpful and 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. However, if the market keeps rising, the probability of selling the property quickly for a large profit increases. In contrast, when property values are falling more bargains become available.
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 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 decrease 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 cash reserves. This makes “nothing down” investing very helpful to protect against negative cash flow for a 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
Become educated in your local real estate market first by understanding the large scale trends from global down to national, regional, and specific neighborhoods. Learn about target neighborhoods with the help of successful real estate investors in your area along the way.
Real estate investors 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. The more information you have, the better your investment decisions will be.
Don’t guess. You need to have a clear plan laid out if your investment goes south. As a real estate investor, you must know exactly how you will exit the property before you buy. You should also 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.