Being a successful real estate investor requires a steady and consistent flow of good deals, the ability to act fast and knowing how to leverage each deal for maximum profitability. This requires a certain set of skills that allow you to quickly locate, assess and move on the right deals at a moments notice.
This article outlines five essential skills every successful real estate investor must possess and develop.
You must learn how to appraise and find the true value of real estate. This information will help you make better investment decisions. Realtors, appraisers, and banks determine what a property is worth by looking at the market, the property and comparable sales of three to five sales of similar properties that have recently sold in the same neighborhood. You must be able to do the same.
Knowing what to look for and obtaining a list of comparable prices of properties bought or sold (and when it sold) for the neighborhood you need information about is important. Asking active real estate investors in your area what the market is like will also be helpful and help you make a better investment decision.
There is no such thing as an ideal real estate market for investing. It tends to be more difficult to find bargains in rising markets if the market keeps rising. The probability of selling the property quickly for a large profit increases. In contrast, when property values are falling more bargains become available.
You need to be able to assess the true value of properties based on when you expect to sell. Your purchase must be made at a significant enough discount to allow for a profitable sale at a later date.
Leverage is very important for investors because the less cash you put down on each property, the more properties you can buy. If the properties go up in value your rate of return goes up. However, if the properties go down in value and you have a lot of debt on the property this can result in negative cash flow.
Since real estate is generally cyclical, negative cash flow is only a short-term problem and can be handled if you have other income or cash reserves. This makes “nothing down” investing very helpful to protect against negative cash flow for high leverage investor.
If you are a long-term real estate investor, leverage will work in your favor if the markets in which you invest appreciate in the long run and your income from the properties can pay for most of your monthly debt.
To limit risk, become educated in your local real estate market. First, understand the large scale trends from global down to national, regional and specific neighborhoods. Also, learn about target neighborhoods with the help of successful real estate investors in your area along the way.
Other real estate investors can help you interpret market indicators, such as the average length of time houses have been on the market this month versus last month or last year. With this information it will help you make better investment decisions.
It is important not to guess the future of a local real estate market. You need to have a clear plan in mind when you are purchasing property. As a real estate investor, you must know exactly how you will exit the property before you buy. And, you must have a backup plan or two in case the first course of action doesn’t work. Make sure you know your market and your plan before you begin to invest.
Bill Manassero is the founder/top dog at “The Old Dawg’s REI Network,” a blog, newsletter and podcast for seniors and retirees, that teaches the art of real estate investing. His personal real estate investing goal, which will be chronicled at olddawgsreinetwork.com, is to own/control 1,000 units/doors in the next 6 years. Prior to that, Bill and his family lived in Haiti for 11 years as missionaries serving orphaned, abandoned and at risk children.