Real estate investing has always been considered a safe investment. But, as we have seen, real estate investments are not infallible. Real estate investments can tank just like any other type of investment. But even with all of the recent instability, real estate is still a relatively safe investment. But you need to be prepared for uncertainty by adopting different strategies that will allow you to keep from taking a loss when the market sours.
The first impulse that people have when the market starts to turn south is to sell before they lose any more money. Unfortunately, this only offers a false sense of security and results in a substantial loss. The best thing to do when the market experiences trouble is to ride out the market and hold onto your investments until the market turns around. Granted, the market might become worse before it gets better, but it always gets better.
When you sell an investment in panic mode, you stand to lose a lot. The value of the property has already decreased, so you will only be able to sell it for the current value which may be less than what you paid for it. If you can afford it, you should hold onto the property and then sell it when it is worth more. You may even be able to sell it for profit later instead of taking a loss now. If you cannot manage to pay for the property, you may want to consider renting it out.
You may want to do some research and make sure that you are taking advantage of all of the tax benefits available. Consult a tax advisor and see if there are any areas where you are losing money. Tax write offs may give you the additional income that you need to hold onto a property.
If the unthinkable happens and you fear foreclosure, you may want to sell instead of taking a complete loss. This is a drastic situation that requires fast thinking and strategy. Look for ways that you can increase the value and salability of the property. Fixing eyesores or making the property more desirable might be all that is needed.
You will need to keep your nerves about you if you plan to ride out a crashing market. Never let emotional rule you. Avoid making hasty decisions. Make sure that you consider all options before you decide on any strategy. After all, you don’t want to have regrets later. Keeping your head on your shoulders could mean the difference between making a profit and losing it all.
Just because you’re making a real estate investment, it doesn’t mean that you are wealthy. You could be purchasing your first home for your family, or you could be changing career paths and pursuing real estate as your career and passion. Don’t be careless; consider these steps to get yourself on a good course towards success.
1. Do the research. Adults don’t usually like to hear the word “studying” it brings back long, stressful or boring nights in college and high school. But you need to study up before you make a real estate investment. You need to study the market, study the location and the legal processes involved. You need to find out every element you will need to worry about, from taxes to insurance to government regulations and more. If you don’t find all of this out in advance, you can be in for a rude awakening down the line.
2. Prepare all of your finances. Some people do things the wrong way, like finding a property you love and then trying to figure out if you can finance it. This can lead to accepting bad deals, waiting a long time for a loan and missing out on your chance to strike and many other mistakes. So you need to get that financing ready ahead of time. This will give you adequate time to find out the best option for you, and what properties you’ll be able to pull off. Without this you can take too much risk or accept bad loan terms.
3. Now find the property. There’s more to do than just look at a newspaper and pick out the property, although that can be a good start. You can use the internet to find your dream real estate investment and you can drive around the area looking for signs. You can also keep in touch with listing agencies, construction and development contractors and more to get a leg up on other investors.
4. Negotiate! Everything can be negotiated, and if you don’t try, you are losing out on the benefits. That doesn’t mean you should expect to walk into a negotiation and get everything you want either. You want to be able to negotiate a fair price that works for both parties involved, ensuring the deal gets down quickly and properly. Negotiation is about compromise, so know ahead of time the range, timetables and other factors you can live with.
Real estate investing includes several different ways you can earn a profit, if you know the differences and are prepared to take advantage. You could, for example, flip a property by buying it, fixing it up quickly and immediately selling the more valuable property for profit. You can buy foreclosures, which are auctioned off, and potentially get a steal of a price on a great property. There’s abandoned property you can research to find out who the last owner was and if it’s possible to assume that role. You can also invest in mutual funds and other avenues, and make money with the real estate market without ever purchasing a physical piece of property. As you can see, there are plenty of options, but keep these principles in mind regardless of the route you choose.
Always Manage Your Exposure When Real Estate Investing
Making money with real estate comes down to properly researching all of the factors involved. Diversification is always a good strategy if you can afford it. That means you lower your overall risk by investing in multiple options, so that if any lose money, you don’t suffer greatly. You can also mange your risk and exposure by researching all of the laws and processes involved.
You also need to find available properties, learn how to obtain them, figure out how much it would cost and what you can afford and what your strategy is, quick profit or long range value?
Always remember to:
1. Learn the local economy. Of course the economy is important, but within the overall picture, local outlooks can change greatly. Different areas can have weak or strong job markets, skyrocketing or plummeting real estate value and so on. So learn the local area you plan on investing int.
2. Get the best financing. That means considering different factors such as fixed rate mortgages, adjustable rate mortgages (ARMs), different loan lengths and terms and so on. Adjustable rate mortgages can seem attractive with low starting rates, however those rates can jump enormously depending on the market itself. Fixed rate mortgages may start higher but you will have stability. You need to consider what the best option is for you and your needs.
3. Pay as high a down payment as possible. Paying a high down payment does a couple of things. It takes money off the loan amount, meaning you can pay it off quicker and have to pay less interest. It also means that there’s less risk for a bank, and so the interest you get should be lower to begin with.
4. Get creative. That means making higher monthly payments than necessary, so you pay it off quicker than you need to and owe less interest. Smart and creative thinking like that can save you big money over the long term.
Real estate investment is an extremely exciting way to generate wealth. After all, there are not that many business arenas in which a single deal can potentially mean major changes for every aspect of your life. However, this life-changing facet of real estate investing can work both ways. Mess up, and you could literally cost yourself a fortune.
The best way to work successfully from the start of your real estate investing career is to learn from the mistakes of others. Sound ruthless? It’s not. There is a vast reservoir of knowledge out there, and it just makes sense to take advantage of it. There are a lot of expert estate investors out there who have generated thousands, hundreds of thousands and even millions of dollars who learned all their realestate investing methods and strategies the hard way – one particularly notable mentor lost nearly half a million before he really got things running smoothly.
So if you want to learn from the best, then ask the best about their mistakes. Here are three major mistakes that nearly every real estate investor (except you!) will make at some point in their career. Every one of these examples was made by a major investor who had to learn a hard lesson from that mistake:
1. Trying to do it all on your own.
Novice investors often have lots of educational background, but little “real-world” experience. They understand why estate investing works, but they may take on more than they can handle. Keep your enthusiasm under control and you will benefit in the long run.
2. Getting emotionally attached.
The fact of the matter is that most real estate deals will not work out. As an investor, you have to accept that and move on when it looks like a deal is not as good as you had hoped. Otherwise, you will simply waste time and money trying to make a guaranteed failure work.
3. Refusing to ask for help.
Lots of investors are embarrassed to ask for help when they need it. It is completely reasonable to want a guide for your first forays into estate investing. However, largely because real estate has been promoted for the past decade as a “simple” and “easy” way to generate wealth, people find themselves feeling like they have missed something obvious if they ask for assistance. This is not only a poor decision, but also a total misconception. Real estate can be difficult, and there is no shame in generating wealth because you asked for help rather than losing your shirt because you didn’t.