Success takes hard work and, of course, some risk-taking. But those who truly excel operate according to certain general principles that help in any career field. Before going into any field of work, you must educate yourself about what exactly you’re getting yourself into. Read and read again about factors to take into consideration and about previous experience from people who have tried this field. As for real estate investing, we all know that it is a type of investment that comes with many risks as well as rewards. Below are a few of the many real estate investing facts that every house investor needs to know. Let’s begin!
Related: Investing in Real Estate: The Basics That You Need to Know
Real Estate Investing Facts: Location of The Investment Property
Of all the real estate investing facts, this one is definitely a legend. From generation to generation, we’ve heard the old saying “location, location, location!” This old saying still remains until today the most important factor to make a profit in real estate investing. Why is it important? Well to begin with the environment in which you buy your investment property in plays a crucial role as to whether or not you will attract tenants to your property. This not only applies to residential properties but also commercial properties. You see, aiming for a location that is close to amenities, peaceful areas, scenic views, etc. is a major factor for residential property valuations. Closeness to markets, warehouses, transport hubs, freeways, tax-exempt areas, etc. is an important factor for commercial property valuations.
Now ask yourself what should I look for when searching for the right location? A mid-to-long-term view of how the locality is expected to change over the investment period. Today’s peaceful open land at the back of a residential building may be developed into a noisy manufacturing facility in the future, making the residential valuations less profitable. It is logical to conduct a thorough check of ownership, type and intended usage of neighboring areas, establishments and free land in the locality.
Real Estate Investing Facts: The Value of Real Estate
One of the most important real estate investing facts is being able to estimate the value of real estate. Estimating the value of real estate is necessary for a variety of actions, including financing, sales listing, investment analysis, property insurance, and taxation. But for most people, deciding the asking or purchase price of a piece of rental property is the most useful application of real estate valuation. Some commonly used valuation methods include:
- Sales comparison approach: Recent comparable sales of investment properties with similar characteristics –most common and suitable for both new and old properties
- Cost Approach: All cost summation minus depreciation – suitable for new construction
- Income approach: Based on expected cash inflows — suitable for rentals
Related: The 10 Things That Everyone Should Know About Real Estate Investing
Real Estate Investing Facts: Focusing on Your Purpose
So many real estate investors jump into real estate without actually knowing why or without having a main focus. Being focused on rental property requires a solid business plan. That is why this real estate investing fact is the solid platform that every house investor needs to walk on. It’s like the old saying “If you don’t know where you’re going, you’re not going to know if you’ve arrived.” You need to set out your goals clearly in writing. This method forces investors to clearly write down and state their primary purpose in real estate. You can ponder things over, but once you put a pen to paper and start framing it out, it has a far more graphic impact. It’s a great motivator and a great way to get one step closer to becoming a smart real estate investor. First, think about what you want to do and then why you want to do it. Do you want to buy-to-hold or flip houses? If you prefer quick flips, ask yourself why? You should then set out what property type and real estate market you want to invest in, as well as the price range you’re comfortable with. This will create a firm business model and a great plan to follow.
Real Estate Investing Facts: Flipping is the Best Way to Make Money
Of course, some may argue that this is more of an opinion than a real estate investing fact but let me convince you that it is indeed a fact. For those not familiar with the concept of flipping, it is when you buy an investment property and quickly sell it for a higher price for a quick profit. Flipping was definitely a widespread activity in the last property boom as it was relatively easy to buy a home, watch the real estate market rise in value each month and then sell it within 12 months or so for a higher price. We are no longer in a bull housing market and it seems that only about 5% of homes bought by real estate investors were resold within the year. The typical house investor will normally hold on to an investment property for at least five years before considering selling, so you can reasonably assume that at present, flipping is not really the best way to make money on property, although it can be profitable if you buy at the right price, like a foreclosure for example. So it all depends on how you look at it and if your timing is right or not.
Related: Where Can You Find the Best Financing for Flipping Houses?
Real Estate Investing Facts: Determination!
For me, this should be the number one real estate investing fact that ever real estate investor should know before taking any steps towards real estate. It doesn’t take a fact to understand that without determination NO real estate investor would be able to succeed in investing. Being determined means more than staying motivated in tough times. It also means keeping the bigger picture in mind. The reason why a lot of people make emotional decisions when it comes to real estate or even the stock market is that they’re inexperienced and naïve. They have a very short-term perspective and they’re being affected by all of the negativity and all of the fear-mongering out there. If you look at the bigger picture, you’re not going to make short-range, impulsive decisions. You’re going to apply the fundamentals that the many millions of people who have made millions of dollars in real estate have.
The Bottom Line is that real estate investments offer a good high-value risk-return profile. Thoughtful consideration of the above-mentioned real estate investing facts will enable investors to reap the benefits while justifying the risks. Be sure to check out Mashvisor for the latest tip and strategies on real estate investing!