Real Estate Investment Shrewd Or Foolish? A Contrarian’s View
The contrarian in me is licking his chops at the prices of houses in the United States. The US market has experienced harsh corrections over the past few years. Economic uncertainty is nevertheless in the air and there is the possible for further mortgage defaults on the horizon.
Real estate investment is a game of risk vs. reward. While the age old saying is location, location, location you can also add timing, timing, timing to the equation.
The meaningful to winning in this market is understanding the economics of the market and the correct price point that the market will sustain. First a review is in order of the fundamentals of buying and selling real estate, and how they apply in this market.
Buying and selling real estate requires discipline, risk tolerance and an understanding of both the market and the marketability of the house you wish to sell. You need to be well financed and focused on the final outcome of the transaction. Real estate investment is a mix of emotion and business. Gone are the days were chutzpah and a good banker would allow you to make money.
Rule 1: Know your market and your buyer. Understand how much they will earn, were they likely will work, their age, family position and education. Once you have a deal lined up you need to know that your deal will close. No money…no deal.
Rule 2: Know the area. Can your buyers find a job? Are employers entering or leaving the area. This will impact on the attractiveness of the area to lenders. What are the average wages in your area? Understanding this will permit you to determine the price point you should be operating at. This is in addition to the usual closeness to shopping, schools, churches and transit.
Rule 3: Be well financed. You cannot function on a shoe string in this market. Your possible investors or banker will want to know that you can stay in the game until you close.
Rule 4: Pick your targets carefully. You need to buy 25-30% below your target sale price to make a profit.
Rule 5: Understand what you can fix and what you should walk away from. The current market will allow you take a closer look at the house to ensure that you do not have to include structural repairs in your retrofit.
These rules will allow the investor to begin the hunt for obtainable similarities. Closing quickly and with the assurance that you know the house will permit you to make a profit for you and your investors.
Ignore the rules? You may in addition start throwing hundred dollar bills out the window.