Factors to Consider Before Venturing in Real Estate Investment
Thursday, 03 December 2015, 09:50:00 AM
One great advantage of real estate is that even in economic crises, it usually does better than stocks. After all, the land is a finite resource. People are in need of a place to live, play, shop, and work. Thus, real estate is simply a matter of demand and supply.
Remember, real estate will continue to appreciate in spite of the occasional economic slow-downs. Real estate has proven to be the best wealth creation tool, and you don’t need to be a millionaire or a genius to succeed. Here are tips for entrepreneurs to get started and achieve success in real estate investing.
1. Plan your financial goals
Before you do your first analysis or buy your first property, determine your expectations from your investments. Ask yourself what your financial goals are. There is something known as the “Time Vs Money” concept. It says, to achieve your financial goals, the more you have one of these, the less you need the other one. Thus, don’t be afraid to take the time to understand your goals and ensure that every investment is a step towards achieving them.
2. Don’t spend a fortune on books, seminars, and tapes
You absolutely need to learn the basics of real estate investing. Thus, do some studying. However, don’t let collecting and buying information be your endgame. Also, keeping your goals in mind will help make the process more straightforward.
3. Look at plenty of properties
Don’t just purchase the first property you come across. A lot of investors buy properties because the properties look “attractive,” and many don’t want to put in the effort to look at what is out there. You won’t be living there, so, don’t make the decision based on your personal preferences. Ensure you do a thorough job of looking at the properties. Give yourself a lot of options, and then narrow them down depending on your criteria.
4. Don’t postpone investing while waiting for the perfect deal
Moist investors suffer from indecisiveness, thinking that a better deal is around the corner. This can backfire, and you may let a great deal to slip out of your fingers. Yes, you may experience difficulty if this is your first property. However, you must remember that perfect deals rarely exist.
5. Be thorough in your financial analysis
Embrace a realistic mind; consider different alternatives and determine the ones that make the greatest financial sense. Never buy a property on less attractive terms or at a higher price than your analysis considers sensible. Avoid dealing with sellers that overestimate the values of properties through proforma data. As much as you can use a proforma to start a conversation, ensure that you know the real numbers before closing. There are several vital figures you should be familiar with. They include:
• Net income • Cash flow • Return on investment (ROI) • Cap rate • Cash-on-cash return • Total ROI
Once you know these figures, you can determine if a property suits your financial goals.
6. Avoid buying a property that the seller has no motivation to sell
If the seller is motivated, he or she is more likely to give you a price range that will most certainly suit your financial goals. You may wonder how to know if a seller is motivated. First, consider the asking price. Take this example, example, if the property has been on the market for eight months, for, say 250,000, with little or no price reduction, most probably the seller is not motivated to sell. But if it has been in the market for this duration and the price has moved significantly, most probably the seller wants to get the property off his hands.
Venturing into the real estate investment can be tricky, especially if you don’t put certain factors into consideration. So, plan your financial goals, do a thorough financial analysis, be proactive in searching for properties, and don’t wait for the “right” time.
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