One of the most powerful aspects of investing in real estate is its reliability as an asset. Land is a finite source, and no matter how bad the economy is doing, people will always need a place to work, shop, eat, and sleep. However, that doesn’t mean it’s always a sure source of profits and returns. Take the financial crisis, an example still fresh in America’s mind today. The bursting of the housing bubble caused the plummeting of securities tied to real estate pricing in the United States. As a result, people lost homes, investors lost money, and financial institutions suffered. Nevertheless, real estate investing is still a much safer investment than many of the financial instruments available to investors today. If you are an entrepreneur looking to invest in real estate here are a few tips from entreprenuer.com and foxbusiness.com you should certinly consider.
Firstly as an entrepreneur, you must determine your financial goals. Make sure that you understand your investment, and whether or not it will lead you to achieve your financial goals. Your first step should also focus on learning and understanding the real estate market. Many investors jump into real estate without having an idea of the industry itself. Proceed with caution if you are unsure on the developments of a certain market.
After you’ve learned as much as possible and have decided to proceed with your plans, look at plenty of properties. Never limit yourself to just one option, and attempt to determine which one will be the most profitable for you. Do not postpone because you are waiting for the perfect deal. The perfect deal may never arise, and you may actually miss out on a good deal for a non-existent one.
Do not buy a property that the seller is not motivated to sell. According to entrepreneur’s article, it is much easier to strike a deal with someone who is actively looking to sell their property than with someone who is not. Someone who is not motivated to sell their property will not provide you with easy negotiations if they are content with what they have. To identify who is actively looking to sell their property, attend open houses, look at vacant lots for sale, and promote yourself as a buyer. Also, evaluate how long a property has been on the market, and the amount of times its price has dropped.
Do a thorough financial analysis. This is where the bulk of your initial investor work will go. If a property is at a higher price, or at less attractive terms than your initial analysis says makes sense, scrap it. Make sure to take a look at some of the previous years’ property-tax bills, maintenance records, and tax returns to properly understand its future real income and expenses. The most important figures you should consider are net-income, cash flow, return on investment, cap rate, cash on cash return, and total return on investment.
Finally, you should have some last considerations. Real Estate is fairly illiquid, and can therefore be a fairly useless option for immediate liquidity. If you are retaining your property for longer than expected, this can be troublesome. Make sure you have backup reserves that will provide a cushion for expenses like taxes, maintenance, and other associated fees.
Investing in real estate is certainly one of the best ways of generating wealth. As an investment, it is relatively low risk, but can surely provide a high return.