Real estate investment involves the sale, purchase, management, rental or ownership of real estate property for profit. This arena has outdone most of the investment avenues. A large amount of information can be collected, studied and mastered about real estate. Hence, small time investors seem to have a good run, too.
It is important to understand two concepts when it comes to real estate and investment therein.
Real Estate is Capital Intensive
This refers to the ratio of capital requirement to labor requirement. A capital intensive industry involves a large sum of money. It is subject to depreciation and could result in a high amount of fixed assets as per the balance sheet.
Real Estate is Cash Flow Dependent
The growth of real estate is essential for the economic growth of a nation. However, real estate growth mainly depends on the quantum of cash / ready money in an economy since most of the transactions in this industry are carried out against cash.
If you are sure about investing in real estate then the following sources of investment properties could come in handy:
- Market listings
- Real estate agents or brokers
- Banks
- Governmental agencies
- Auctions
- Direct sales by property-owners
- Real estate investors
Real estate guru, Jeff Adams, believes that real estate investment offers benefits like none other. These include substantial earnings, capital appreciation and tax benefits. However, he strongly recommends a thorough understanding of the pros and cons before the final nod.
The Do’s and Don’ts to Bear in Mind
DO
Get the Right People – Create a team comprising reliable members including an accountant, lawyer (real estate and broker), realtor and long-term investors.
Set the Right Expectations – Real estate is a long-term investment with no immediate results. Unlike the stock market which has daily movements, real estate has slow and steady fluctuations. Be patient.
Understand Geography – Research your location or the one you are interested in.
Upstream Cash Flow – Be sure to have ready money since real estate transactions require substantial cash flow.
Ask and Seek – Ask questions and seek advice from the regular players. Successful investors have a treasure of knowledge to share.
Don’t
Involve Emotions – Get rid of the inherent inertia. If you have had a good run, don’t get your hopes high. If you have hit some lows, don’t lose hope.
Speculate – Avoid building castles in the air. Successful investment is based on strong research and facts.
Purchase Hastily – If you find someone selling off a property at low rates, do not say yes at once. Get all the inspection checks in place, understand the history and conditions of the property and take a look at all the legal documentation.
Ignore Tax Planning – Always consult an accountant to manage the taxes. This will set the right foundation when investing in real estate.
Over Leverage – If you are thinking of giving up your entire cash flow, think again. It is never wise to have more debt than what the property is worth or can maintain.
Jeff Adams maintains – Invest in a second home and rent it out. That way you don’t give up everything and stand a chance to bring in a lot.
