When most people think of investing, stocks, bonds, and mutual funds often come to mind. For most Royal Legal clients (including members of our mastermind group), the investment avenue of choice is real estate.
Investing in property such as rentals, commercial office space and multi-family housing isn't everyone’s cup of tea, though because it can be challenging and risky. It also requires dedication, knowledge, and planning.
There is no shortage of online resources if you want to get your feet wet in this highly competitive industry like this one. Before you start taking notes about the basics of real estate, check out these four property investing tips that increase your chances of success.
Investing in real estate is no different than any business. If you intend to be a serious investor, you need a plan. Having a roadmap allows you to see the whole picture and focus on what’s critical instead of being distracted by unavoidable setbacks.
Start with deciding your goals. Are you looking for capital appreciation or yield? The answer will depend on how you view facing challenges. If you’re a risk-taker, you’ll buy properties based solely on their potential for growth and long-term returns. Or you might look at assets that offer rental income for instant profits.
Setting a timeframe for achieving results is another determinant of which investing method you’ll adopt. Deciding what you’ll do will enable you to formulate a specific plan instead of a shoot-and-miss approach.
Be sure to regularly review your strategy so you can take immediate action when needed to stay on course. No matter how well you prepare for the future, you’ll need to be able to deal with curveballs when they come at you.
Your knowledge of the market and keeping abreast with news will help you anticipate most events and make the right decisions.
You’ve heard the saying, “location, location, location." Every real estate investor will tell you that the primary factor in buying landholdings is where they’re situated.
Don’t buy based solely because the assets are low-priced. Do your research on the area so you’ll know the reason for its current value and the potential it offers. Not every inexpensive property can be profitable.
You should identify areas where the demand for buildings exceeds its supply. This shortage will ultimately push prices upwards.
It’ll take due diligence on your part to check the neighborhood and what it offers in terms of return on investment. As part of your assessment, be sure to study the following:
Before buying your first investment property, get professional help with your financial affairs. Taxation laws are complex, and you don’t want to get on the wrong side of the IRS and lose money to penalties and fines.
It’ll be beneficial for you to work with an accountant who’s well-versed with real estate when you plan your strategy. The ability to prepare cash flow projections is vital to providing you with valuable and timely fiscal information. With expert advice from a CPA and an attorney specializing in asset protection strategies, you can use legal structures tailored for property investment to save on your tax liability. Your advisors will also counsel you on whether to invest as an individual or corporate entity for risk management reasons.
Knowing when to sell is just as important as when to buy. It’s all about timing.
Be vigilant and continuously watch the market. If you need to cut your losses, do it and move on. There’ll always be other opportunities. Having a plan in mind at the onset makes it less stressful when it comes to disposing of your asset.
Any investment is risky, but as long as you exercise due diligence and prepare for the challenges, you can attain your investment in the long run. Remember: any people have built their real estate empire by following fundamentals. If you do the same, you can be successful too.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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