“Never invest in a business that you don’t understand” – Warren Buffett
This statement holds true for all types of investments, including real estate. A smart real estate investor is someone who knows the market well and ensures that he invests wisely to earn great returns. Unlike investing in shares or mutual funds, where most investors are aware of the way these investments work, real estate investments are fairly unknown to many. Also, it is not merely about buying and selling a property. There is a lot more to it! If you are wondering how to become a real estate investor, in this article we will be sharing some real estate investing tips to help you get started.
Investing in real estate can be complicated and highly demanding on your time. simply finding a property at a good rate and buying it, might place you in difficult situations more often than not. Hence, you need a robust plan.
Create some long and short-term goals before you invest in real estate. Then, approach your real estate buying and selling activities like a business. This can help you see the bigger picture and maintain focus on your goals rather than being deterred by small problems. Planning your investment also requires you to gather basic information about the market which is essential to the success of any investment.
Going back to Warren Buffet’s quote, “Never invest in something that you don’t understand”, is a fact because by doing so you are probably going to make wrong decisions and may face financial losses. Learn about real estate investing and the markets that you are interested in. What are the current housing loan rates? What is the rent in the area that you are looking to invest in? What types of buyer or sellers are predominant in that area? What type of renters are more in number; singles, couples, retirees, etc.? Such information can help you understand and assess the current market scenario and plan for the future.
Once you have learned enough, you will be able to notice a trend and create potential opportunities for yourself. You can then plan your investments to make the best out of these opportunities.
What aspect of the real estate market are you interested in? Residential or Commercial property? If residential, then are you looking at apartments or houses? If apartments, then are you focusing on penthouses or duplexes? Are you getting the point?
Develop an area of specialization. Focus on it and gain complete knowledge about it. Build a deep level of understanding and analyze all possible trends in this area. This is essential for your long-term success. Avoid the urge of being a ‘Jack of all Trades’ in real estate investing. Focus on one and try to master it as far as you can. Once you have succeeded in this area, then you might want to broaden your horizons by looking at other areas of real estate.
KNOW THE LAWS
This is true for any business. However, with real estate investing it is important to be aware of all the laws and regulations that govern the sector. There is no excuse for not knowing the law. Ignorance is not bliss when it comes to the legal obligations behind your actions. Buying a property is a huge financial decision and it is only fair to be aware of the legalities surrounding it before signing the dotted line.
ASSESS POSSIBLE RISKS
As a rule of the thumb, all investments carry some of the other risks. The degree of risk may vary but you should not rule out all risks. You must assess the possible risks with your real estate investment before investing. These may include the risks in real estate deals, legal implications, etc.
MANAGE YOUR ACCOUNTS
Whether you deploy the services of a professional accountant or do it yourself, you must ensure that your book of accounts works in tandem with your business plans. Taxes and other costs can be managed effectively if the accounts are handled well.
A real estate investment involves a huge amount of money. Hence, it is imperative that you are sure about the property that you want to invest in. Researching and analyzing the market can help you learn, it is also advisable to seek professional guidance from an industry expert before investing. This can also ensure that you keep emotions out of the equation while making investment decisions.
Sharing knowledge is the best way to learn. By listening to others’ experiences, you can determine the best way forward for you. This is where a good network can make a difference. You must ensure that you are the part of a group of like-minded investors who work together for mutual benefit. Exchanging ideas, sharing purchase opportunities and updating each other on recent market/ legal developments can be easier with such a group.
In a nutshell…
These real estate investing tips can help you get your thoughts in the right zone for becoming a smart real estate investor.
Remember, investing in real estate can generate wealth but needs a lot of focus, planning and perseverance to execute the plans
Regardless of a long-term or a short-term investment plan, you must prepare yourself for the real estate market before you start investing. There is no substitute for knowledge and once you are up to the curve, you can plan your investments optimally.