A Wise Investor’s Guide to Real Estate Investments in 2014 – by Jeff Adams

There are both smart and dumb reasons to put money in the real estate market. And as a matter of fact, it’s difficult to gauge at any point in time whether the current real estate market is at its bottom-most point or not. It is highly probable that as soon as the current dust of financial crisis settles, and people move past its consequences, a fresh real estate bubble may very well emerge.

However, if an investor is willing to invest for “right” reasons, having calculated the risk factor, there are high chances of his/her investment being a good one!

1.) Speculation versus Investment

Simply buying land arbitrarily and praying for its value to soar is, in plain language, called ‘Speculating’. Alternatively, purchasing property in order to generate rental income is called ‘Investing’.

The latter is a safer and smarter approach to real estate investment.

2.) Property Value Always Soars

The current real estate scenario perfectly exemplifies that buying property, believing that “prices have to go up”, is among the most foolish reasons to do so.

  • A wise investor must always remember that ‘hoping for’ or even worse – ‘expecting’ prices to go up is pure speculation.
  • It is a must to ensure that any form of investment makes correct sense viewed from the positive-cash-flow angle. So, even if the prices fall, cash flows still remain “right side up!”
  • Regarding speculative investment in real estate, any appreciation can be considered icing on the cake.

3.) Beginning with Residential Real Estate Investment

Investing in residential property is easier to comprehend, purchase and deal with compared to other property types. And a homeowner, more often than not, already has experience in this regard. Beginning close to home makes it easier to supervise affairs more effectively.

4.) Seeing is ‘Not’ Believing

It’s a mistake to believe everything written or heard about real estate investment. (Of course, barring this!) Since real estate agents and sellers always want to quick-sell their property, what they paint before an eager investor is most likely a rosier picture and not an actual one.

For instance, for a rental property, it is wise to demand viewing the seller’s Schedule E tax form, showing the declared revenue and costs associated with the property. One can expect to earn anywhere between the reported figures and the promised ones.

5.) Where to Purchase Property From?

Most people believe that popular locations are the best bet for real estate investing. Despite, according to real estate authority, Jeff Adams, more profit lies in locations that are less sought-after!

It may sound bizarre, but has been proved true with years of research and experience. Wise investors must primarily look for a double-digit ROI. For example, on a real estate investment of $100,000, if the NET or after-expense monthly income on rent is $1,000, it’s an annual double-digit rate of 12%. Industry experts, however, suggest that 5-10% must be ideally expected.