The good thing about real estate is that even in a recessed economy, it will usually soar better than stocks. Land, in all, is a finite resource. People need a place to live, work, shop, play and contain their investments; so real estate is essentially the supply for the demand.
Therefore, real estate will continue to appreciate in value despite the slow-downs in the economy. In fact, it’s proven to be the best way to create and contain wealth and an investor does not need to be a genius or a millionaire to succeed. Here are some important tips, then, for entrepreneurs on getting started and succeeding relatively in real estate.
1. Set financial goals.
Before you buy that property, do your first analysis, determine what you expect from your investments. What are your financial goals? We often discuss the “time vs. money” concept: The more you have of one, the less you need of the other to reach your financial goals. This means that you shouldn’t shy away from taking the time to understand your goals and make sure each investment is a step toward achieving them. If you are unsure exactly how to create financial goals, meeting with a financial advisor is an excellent first step.
2. Do not spend a fortune on books, tapes and seminars, then just put all that information on a shelf.
Real estate is less a book thing but real Practical; real risk, real lessons, real experience and real reward. You absolutely do need to learn some basics before venturing into investing. So, be sure to do some studying, but don’t let “buying and collecting” information become your endgame. Again, having goals in mind will make the process much more straightforward. It’s easy to get so tied up in the “research” phase that you never actually take action. Instead, write down specific questions you want answered or goals you want to meet before delving into the latest book/seminar/etc.
Don’t just grab the first property you look at. Too many investors buy properties because they “look nice,” or the investors don’t want to put the work in to look at what’s really out there. Remember, you won’t be living there, so don’t make your investment decision based on your personal preferences. While you shouldn’t fall into the trap of analysis paralysis, make sure you are thorough in looking through properties. Give yourself a wide range of options, then narrow them down based on the criteria (goals) you have set for yourself.
4. Avoid Procastination because you’re waiting for that perfect deal.
Plenty of beginning investors suffer from “a-better-deal-may-be-just-around-the-corner” syndrome. This can backfire in a big way, and you could potentially let a great deal slip just because you’re holding out for something better. Your task may feel difficult if this is your first property, but you must realize that the “perfect deal” rarely (if ever) exists. Better to execute on a deal that meets most of your criteria than wait for another that may never come.
5. Make a thorough financial analysis.
Be realistic. Look at different alternatives to determine which makes the most financial sense. And never buy property at a higher price or on less attractive terms than your analysis says made sense. Be wary of sellers that try to over-estimate the value of the property through pro-forma (estimated) data. While you can certainly use a pro-forma to start the conversation, make sure you know the real numbers before closing. Look at previous years’ tax returns, property-tax bills, maintenance records, etc. to get a good idea of the real income and expenses.
6. Know the difference between real estate investing and the business of real estate.
As an entrepreneur, you already have a business, and real estate investing is best used to support that business, not replace it — unless that’s your intention. In other words, don’t get so caught up in executing transactions that your core business falters. If that happens, you’ll be facing a bumpy road to get back to stability. Unless your business is itself real estate, or you’re looking to get into the business full-time, always remember that pursuing these deals is a means to an end, not an end unto itself.