Without a doubt, real estate investing is a great business option for most people, as it reaps big financial benefits in the form of short-term rewards as well as long-term gains. Real estate investing gives investors financial freedom, and there is absolutely no profit cap on how much you can be earning in this business. Whether you are a beginner or an expert real estate investor, you have the ability to build wealth in real estate and secure for retirement.
But, it all boils down to how much time and effort you are willing to put it to learn, adapt, and strategize for the best gains. The most successful real estate investors have the right forethought in finding real estate opportunities before others and see the potential in an excellent investment property when others don’t see it.
It takes the right education, experience, and skills to see the true value and potential of an investment property. To become an expert in real estate investing, one must possess key principles to build a strong foundation for success. Learning is key to develop any skill and reap big success. Without hard work, you won’t materialize big success and big returns. And this applies to anything you want to do in life.
So, let’s get to it, here are 10 fundamental principles in real estate investing to build wealth and prosperity in the long haul.
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10 Fundamental Principles of Real Estate Investing
1. Buy and hold real estate is the key to riches
Capital appreciation is the antithesis of getting rich overnight. In real estate investing, it requires lots of patience and time. Successful real estate investors are farsighted and look to make money and build wealth in the long term. Real estate is not about generating cash in the quickest time; on the contrary, it is all about capital appreciation and building a capital business. To invest in real estate means to invest long term or, in other words, to buy and hold property for long-term rewards. Real estate investors who ‘fix and flip’ houses use the cash flow generated to fund a long-term investment strategy. So, long story short, always think ahead.
2. Investing in positive cash flow properties is the key to growing your real estate business
Another good strategy to keep in mind is to invest in positive cash flow properties and not so much negative gearing properties. “Why?”, you may ask? Well it’s simple: you need cash flow to pay off your mortgage payments and other expenses. Rental income pays off the bills, so make sure to invest in a good rental property where rental demand is high to avoid bankruptcy and foreclosures.
3. Never invest on a whim: Number crunching is crucial
Real estate investing is all about strategy; make sure you have a business plan and set achievable goals along the way. Most importantly, conduct real estate market analysis and investment property analysis before you close any deal with a property seller. Never make an investment decision without having the numbers add up.
This includes but is not limited to: calculating key financial metrics, estimating net ROI, and understanding what cash on cash return and cap rate are. And take into account current and carrying costs, mortgage payments, interest costs, depreciation, etc.
4. Capitalizing on a prime location is a major prerequisite
This one goes without saying, but is crucial to bring up nevertheless. Location, location, location is key to a profitable real estate business. Never undermine the importance of choosing the right location for your rental property. A good location brings demand, and demand attracts a bigger pool of tenants, and good tenants (if chosen diligently) pay off the bills and put some extra cash in your pocket.
Related: What Are the Best and the Worst Investment Property Financing Options?
5. Always have leverage in the negotiation process
The best trick to gain leverage in the negotiation process is to deal with a property seller motivated to sell. With a motivated seller, you are in a better position to negotiate a better bargain.
On a side note, emotional intelligence can get you far in closing better deals in real estate investing.
6. You don’t need your own money to start and grow your real estate business
This is what smart real estate investors do: they borrow money to grow their returns and build their wealth in real estate. Real estate investors choose banks and financial institutions to accelerate their growth and use financial leverage to buy multiple investment properties to diversify their investment portfolio in the best and most cost-effective ways.
7. Understand the real estate market cycle
Know that the real estate market is cyclical; it is ever changing and never static or stagnant. With this in mind, investors must understand the cycles in real estate for a better strategy and higher rewards. In real estate investing, you make money via:
- Cash flow
- Capital growth
- Equity
These byproducts are mutually exclusive and unlikely to be achieved simultaneously during a cycle. For example, you cannot gain capital growth when the prices are falling, but it is wise to buy below market value before prices pick up again.
8. Perfect your negotiation skills to influence anyone
To reiterate, develop your communication skills, learn how to be a better negotiator, and learn the art of persuasion. Acquiring these skills is of great benefit when you are negotiating the price of a property, setting rents and lease terms with tenants, mortgage rates with your bank etc. Keep in mind that these skills can make all the difference to your bottom line.
9. Stay on a steep learning curve to make big bucks
Self-education is the key to making money in real estate investing. Learn and acquire education as much as possible. The more you know, the better equipped you become to make smarter investment decisions. In a nutshell, knowledge of real estate will set you apart from the other real estate investors and give you the leverage to find the best, most profitable investments, respective to the market conditions and the real estate cycles. The web is filled with resources to help you become a real estate expert. So, do not discount real estate blogs, podcasts, YouTube videos, etc.
10. Think big but start small
The best advice we always give is to start small and build your real estate business by setting incremental and achievable goals. It all starts with simple steps to accumulate wealth in the long term.
Related: Why Mashvisor Is the Best Real Estate Website in the US
Conclusion
The sky’s the limit in real estate investing as long as you apply these fundamental principles to your investment strategy and business plan. Build a strong foundation to become a real estate expert and win big in the long term. Money doesn’t grow on trees, so you have to work SMART to get it.
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