Investing in Real Estate 10 Key Points to Succeed
Investing in real estate does not require ultra-specialized knowledge. But that does not mean that it is a type of investment that can be approached lightly.
Irresponsibility in real estate investments can cost dearly.
If you are starting in this world, this article by Blue world Cityis for you. Today we explain to you what the key elements of success in real estate investments are. Keep reading.
Investing in Real Estate, the Best Option
When looking for a low-risk investment that can be managed with little or no experience in the area, real estate is the best option.
Why? Because investing in real estate is beneficial for the first-time investor for all these characteristics:
You don’t have to be an expert to invest in real estate.
The risk is low, since you bet on something safe that, in addition, is backed by a real physical asset.
From the beginning, you perceive profitability.
Even if the market changes, the real asset (the property) will still be there, being able to appreciate over time.
Investing in Real Estate is Not for Everyone
Not Everyone Should Invest in Real Estate
So does this mean that everyone should invest in real estate? The truth is, no. But surely you ask yourself: for whom is this type of investment not suitable? Let’s see it in depth:
Those who are not willing to wait. For this, daily trading will be better.
Those who wish to put their money into innovative business models. They will prefer to be venture capitalists at StartUps , for example.
Those who do not seek income but increase the total value of their investments. Those who will want to bet on investment models such as the so-called “investment in securities”, popularized by Warren Buffet.
Those who fear dealing with tenants. Although the latter can hire an operator to manage their property and thus not have to deal directly with the tenants.
How to know if you will be successful investing in real estate? Analyze These 10 Key Points
Discover How to Succeed When Investing In Real Estate
Is there a way to know if a real estate investment will fail? Can you control the variables that guarantee the success of a real estate investment? The answer to these questions is no.
There is nothing 100% safe in investments, but there are a series of practices that you can implement to protect your money; as well as certain mistakes you can avoid.
Knowledge is key to steer clear of risk factors and achieve your goals.
Let’s review these points then and see how you can apply them in your real estate investment.
1. Define Goals and Objectives
Before investing in real estate, you must establish your purposes, both for the money and the investments themselves.
That is to say: that you have a possible income goal and also an objective of the number of investments that will diversify your investment portfolio.
It can be something like: “In five years I hope that my investments in real estate are giving me an average monthly income of $ 2,000,000.
This, with the objective of owning a stake in at least three real estate properties.
As you will see, these are concrete and quite realistic goals within the market.
2. Investing in Real Estate: Being Willing to Take Risks
As we told you before, investing in real estate involves low risk, but this does not mean that it is free of dangers.
However, these can be controlled. Taking risks does not mean being irresponsible or jumping into the void, rather it is a way to move forward.
Learning to minimize risks is key. Knowing how not to risk each investment will help you lose your fear of investing and this will allow you to take risks with new investments that give you the opportunity to further increase your profits.
Let’s see an example:
You buy a studio property in the city center, with the aim of leasing it to a young professional.
You hire an operating company that guarantees the high turnover of your property, that is, that there is always someone renting your property; and, shortly after your investment, with the income obtained you buy a warehouse in an industrial area.
When investing in real estate you opt for controlled risk investments.
But by daring to diversify the return on your investment, acquiring another property when the first is working, you take on a new risk that will be reflected positively in your pocket.
3. Class of Investment to be Made
In real estate it is convenient to know what investments will be made. Let’s see the main ones:
- Family departments.
- High-turnover studio-type departments.
- Offices or offices.
- Sheds and warehouses.
- Land for immediate use.
All these investments in real estate generate income under the same operating lease scheme. But, when investing, evaluate the kind of investment you will make.
In this sense, if you have doubts, consulting with a real estate expert can be key.
4. Analyze the Risk-Return-Volatility Equation
In this evaluation, you must include a study of three core variables:
Risk. Assuming that real estate is a proven model, you have to know that not everyone has the same risk.
Buying a studio apartment in the city center will be less risky than acquiring an office, for example.
This is because in the case of the department there will almost always be clients, while the leasing of the offices depends on the good health of the economy.
Return. The rate of return changes with each case. Continuing with the previous example, the rental price of an office is higher than that of an apartment.
In this sense, your return is higher, because your risk is higher.
Volatility. The risk is marked by volatility. If the offices have a higher price it is because their volatility is greater; since the success of this investment depends on external factors such as the number of financially healthy companies and the business models of these companies (remember that not every company needs offices to function).
When investing in real estate, ask yourself how much risk you are willing to take.
Do it based on the type of return you expect and taking into account the volatility that you are able to tolerate?
5. Extra Lawsuits That May Arise When Investing in Real Estate
Real estate has a lot of passive investing, but it isn’t quiet. You must put time in your investment (even if you hire an operating company).
As well as considering the maintenance demands that your properties may require over time.
Never stop considering these aspects, doing so will affect your chances of success.
6. Study the Value Offer
As we said in points 3 and 4, real estate is of different types and each one of them offers a different value.
In the case of offices, their value is in accessibility, connectivity and general working conditions. Those additions will be the ones that lead entrepreneurs to rent your offices.
On the other hand, when we talk about housing, the considerations are different; since, according to the needs of the tenant, they can vary.
The home that will be rented to a young executive offers a different value than what a parent is looking for. This is why you should think about your ideal tenant.
7. Legal and Legal Framework
A saying goes that the devil is in the details; And if there is an area where this becomes tangible, it is in the legal and legal framework of real estate investments.
Make sure to inform yourself about the legislative aspects of your investments (especially tax regulations). Seek the relevant legal advice and don’t leave any loose ends.
Doing so will lead you to regret it in the future.
8. Calculate the Return on Investing in Real Estate
If you have already decided the aspects mentioned in point 4, then it is time to make concrete calculations.
Be realistic, do not overestimate the expected return. If you do, you will be disappointed, or worse: you will compromise income that you will not receive. It is better to stay a little short for realistic, than to be disappointed or go into debt.
9. Estimate the Liquidity You Will Have
Profitability is not the same as liquidity. Profitability is the general estimate of value. Liquidity is the ability you have to pay your expenses with the income of your investments.
Do both calculations and, again, move moderately in your liquidity estimate, especially at the beginning.
10. Seriousness and Reputation of the Offeror of the Real Estate Investment
Do not go with charlatans who offer you liquidity and impossible profitability. It is best to first assess the seriousness and reputation of who offers you a real estate investment.
Trust more in those who present you with a serious and long-term plan, than in those who promise magic formulas.
Consult the portfolio of previous investments of the company that offers you the investment and, if possible, ask for testimonials from previous investors.
Investing in real estate is easier than doing it in other sectors. The level of knowledge and time required is less than in other areas.
But this does not mean that it is a risk-free investment.
The important thing is to control these risks, manage the variables well and put yourself in the hands of professionals in the field. Only then can you invest in real estate successfully.