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| The Truth About Real Estate Investing and the Basics You Should Know
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If you're like many folks out there you're impressed by gurus like Donald Trump and the fact that he can look at a property and tell you whether or not it will be a profitable deal. This kind of knowledge comes with experience and training. When you possess these abilities you have tremendous leverage over others who are investing by the seat of their pants. The feeling you'll get when you close on your first profitable deal can only be described as sensational.
Your key to successful real estate investing is to understand important basic principles such as time value of money, risk, and project management.
First, time value of money, every dollar you invest in a piece of real estate must have a relative return to you. You are in the business of making money and maximizing profits. So your first task is to calculate your total return and the time frame you will receive it. You can figure this out with any amortization calculator on the internet. The general rule of thumb is you want to turn over your investment as fast as possible for the highest amount of profit.
Like any investment, real estate comes with it's own inherent risk, knowing the basics of risk is important if you want to be successful. When purchasing real estate you need to consider a number of factors such as the neighborhood, condition of the property, interest rate and terms of the mortgage, amongst other things.
In most cases when you purchase real estate investment properties you will end up doing some refurbishing of the property. Some projects may be as simple as some cosmetic painting to complex jobs such as leveling a foundation. A key skill you will need is project management. Your skills in managing labor, materials and investment capital will literally make the difference between coming in on time and under budget or completely sinking your profits down the tube.
Basic steps when investing in real estate:
1. Find a neighborhood that is stable.
2. Take inventory of the condition of the property.
3. Calculate the time and investment needed to turn the property at a profit and then double it.
4. Negotiate the best price and terms possible with the property owner and your financing source.
5. Once you own a property, immediately put in place your marketing plan to sell the property.
The biggest sticking point most beginning real estate investors face is trying to hit a home run with their first project. Instead of purchasing a property that needs a lot of structural changes, go for one that only needs cosmetic changes (i.e. painting and landscaping) and this will allow you to gain experience before moving on to more difficult projects.
Finally, consider finding a property that you can finance over a 15 year period instead of 30 years. By doing this you will cut your cost of capital down by several thousands of dollars and build equity much quicker. This will allow you to move up into more expensive properties faster with much less risk.
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