Great Fortune

RealEstateInvestment.G-FortuneInvesting in real estate is a great way to put your money to work for you, but where do you start?  While jumping into the real estate market may seem like a daunting challenge, all it takes to begin is learning a little about the basics of buying and selling properties.  The goal is to generate more income on the investment than spending on the purchase, fees and maintenance of the property.  Here is a general outline of how the market works and some common mistakes to avoid.

How Real Estate Makes You Money

There are a few standard ways in which owning real estate can turn a profit.  Let’s take a look at the four most common:

  • Appreciation – Investors can make money with real estate due to market fluctuations.  Over time, the value of the property purchased can increase because of demand and because of renovations and/or upgrades.

  • Rental Income – Apartment buildings, office buildings and other types of buildings where tenants pay rent offer investors cash flow income.

  • Specialist Income – Income can be generated by those who offer specific services related to real estate including brokers and management companies who collect commissions and fees.

  • Ancillary Income – This type of income is generated by such things as laundry facilities in apartment buildings or vending machines in office buildings.  They are like small businesses that operate within a larger real estate investment.

Buying Real Estate

Now that you understand how investing in real estate can make you money, let’s examine how to purchase a property.  Traditionally, real estate is purchased when a buyer secures a mortgage from a lender.  However, there are many different ways that a potential investor can purchase real estate.  They include:

  • Real Estate Investment Trusts (REITS) – professionally managed groups of investors that share in the legwork and in the profits.

  • Rent-to-own

  • Government loans such as FHA and USDA loans

  • Lease option

  • All cash deals

Your ability to secure a loan will be dependent on your current financial situation.  Check your credit report and clear up any errors and pay off balances on existing loans and lines of credit.  In addition, it is highly advisable to form a corporation for the purpose of buying real estate, thus limiting any personal liability that could arise down the line.

Do Your Homework

As a beginning investor, one of the best things you can do to increase your chances of success is to do your homework.  This means taking time to read about real estate investing from those with a proven track record either online or in books.  Study the market in your area and be familiar with the types of properties that are for sale.  Look to see what properties are selling and what properties are not selling and see where these properties are located.  Know what neighborhoods and areas are popular and which ones are not.  Take time to learn before jumping in with your eyes closed.

Shopping for a Property

Good deals on real estate are available, but you have to know where to find them.  Some ways to find potential deals include:

  • Checking the foreclosure announcements in the local paper or with the county clerk’s office.

  • Drive around desirable neighborhoods and look at the homes for sale.

  • Talk to real estate agents and landlords.

  • Advertise online or in the local paper.

  • Talk to other real estate investors in your area.

  • Search online.

Mistakes to Avoid

While making mistakes on investment properties is inevitable, you can avoid some of the big ones by knowing what to expect.  Here are some common mistakes made by new investors and how to avoid them.

  • Having a “stock market” mentality – Many new investors make the mistake of thinking that what happened in the market yesterday is what will happen today and tomorrow.  That is not always the case.  Investing in real estate is a gamble, especially if you are in it for the short term.  Long term investments have a better chance of being profitable.  It is also advisable to have a cash reserve for your real estate business, so you won’t be left out in the cold if the market takes a dip.  Plan for the long haul, and make your choices accordingly.

  • Not having enough information – A big mistake for new investors to avoid is buying a property without any knowledge of the real estate market.  In this business risk is directly proportional to knowledge.  Take the time to learn about the market before beginning – don’t have the attitude that you will learn as you go.  That is a recipe for disaster.  Minimize your risk by arming yourself with information.

  • Not having cash reserves – In order to be successful in the real estate market for the long term it is incredibly important to have cash reserves.  Not having enough back-up cash can cause you to make hasty or bad decisions and act rashly.  When you have enough cash reserves you can wait for a better selling price, a better tenant, or make necessary improvements on your properties.

  • Not treating your investment as a business – The real estate market is generally not a business where you will get rich quick.  Many new investors have unrealistic expectations about their potential success and are often disappointed when they aren’t millionaires overnight.  It can take months or even years to have a successful career in real estate investing.  Treat it like you would any other business venture.

The bottom line is that anyone can be successful in the real estate market.  All it takes it understanding how the market works before getting involved, knowing what mistakes to avoid, and having a long-term mindset about your business.  With those things in place, you are well on your way to finding success as a real estate investor!