Recommendations
Real estate investment can be one of the most lucrative forms of investment today. But it is also equally risk bound, especially when one is not well versed with the trends and nuances of the real estate market. So if you are contemplating an investment in real estate, it is important to approach it with some fundamental strategies in place that can take advantage of market conditions while protecting your capital:
- Have a plan – Think about what kind of real estate you would like to own, and why. Do you want passive or active management? Are you looking for growth or income (or a combination of both)?
- Think long term – Real estate is a long term investment. 5 years in the life of a real estate investment is a short time if you are looking for growth. On the other hand, opportunistic investments might have a 3 year life cycle. Real estate is not traded like stock. Expect to hold on to it for a period of time.
- Don’t over pay – Purchasing a deal at the right price can save your investment capital during a bad market.
- Understand the fundamentals – There is a set of real estate principles that apply to the acquisition of almost any property. Learn them, determine what is important to you, and set your own check list when looking at an investment.
- Know the market for rents – No matter the rate of cash flow, be sure to understand if the rents that support that cash flow are in line with current market rents.
- Try to buy properties that generate cash flow – One of the advantages that real estate has is the ability to earn monthly income that may be tax-sheltered. This is a tremendous attribute of investing in real estate.
- Diversify – Concentrating a significant amount of your net worth on one property is risky. Investing in multiple properties helps defend against the risk of marginally-performing properties.
- Have a back-up plan – It is best to have a couple of options for the optimal performance of a property. If a property does not perform to expectations, you can consider other options.
- Build a team – Form a team of advisors who can help you decide what to acquire. Those advisors can include your real estate broker, a capital advisor, financial advisor, or attorney. Generally, the team should support you as you manage the execution of your investment plan.
