Here are 8-Fundamentals to remember when you want to learn how to get into property investments
A Team Sport
Property investing is a “team sport”. If you try to do everything yourself, you will soon find that you might not have sufficient detailed knowledge and you also might run out of time. So involve the right people to help you. Who are the people that you need on your team? In fact, you might probably want more than one team, one core team to help you with tasks that relate to your overall property portfolio, and a local team to help you with localized tasks. If you are investing in multiple different areas, you should have one local team in each area. Communicate with your teams on a regular basis to build a good relationship, even if at the moment you might not be planning a new property purchase.
Legal And Tax Considerations
It is needless to say that both legal as well as tax matters are of utmost importance to investors. Ignoring those aspects could potentially turn an otherwise very successful property deal into a nightmare for you or even land you in jail!
There are sales contracts to be drafted, tenancy agreements to be signed, and many various forms of taxes to be paid. As legal and tax laws are area specific and continuously change, I cannot go into details here, but rather I urge to consult the lawyer and tax advisor in your core team BEFORE you make any major decision, as well as on a regular basis. Trying to save a few dollars might otherwise turn out to be very costly for you.
What Is THE Most Important Aspect?
Always do your due diligence and know what you are doing. Due diligence is a detailed investigation into the property that you potentially will buy, in order to confirm all material facts before you commit to purchase. The main purpose is that you show reasonable care in order to avoid bad surprises later on.
Good-Bye Before Hello
Another fundamental fact is that you should say good-bye to your property before you even buy it. You will need to be clear about your exit strategy and have at least two of them defined.
Exit strategies can include renting out the property, renovating and selling it, flipping it to add value, and then either rent it out or sell it or change the use. Only if you have two viable exit strategies that work for you, should you proceed further.
Location, Location, Location
You might have heard before that the three most important factors for selection of a property are location, location, and location. Why is that so? Because a property in an excellent location will be easier to rent out, easier to sell, fetch a higher rental income and sales price, and appreciate faster over time. Plus, the banks are more likely to give you a better financial deal on the loan.
Some people also say that timing is equally important as location. As I have shared earlier, if you select the right market segment and area (which also comes down to location), the timing aspect becomes less critical compared to the location.
Is She Pretty?
When I say “she” in this slightly provocative heading, I mean of course the property that you are planning to acquire. Does “she” have to be pretty? Definitely not! Often the best opportunities are in the “ugly ducklings” that might either be in a superb location or might be a run-down house that you can acquire cheaply, build up, and sell for a good profit. You do not have to like the property that you buy. Remember: Don’t fall in love with your property, just fall in love with the numbers.
When Do We Make Money?
Your immediate response might be: When we sell the property for a profit, of course. As a good investor, we should make money right on the day we BUY the property.
How is that possible? Simply by buying your property below market value! That gives you a cushion for market price fluctuations as well as improves your RoI (Return on Investment) since you have a lower purchase price, but that does not affect the expected rental or sale price.
Some other fundamentals I would like to mention here are that you should always stay prudent in your investment decisions. Neither complacency, nor over-confidence after a few good deals will do you any good. Also it is critical that you manage your risk.
Diversification is a somewhat contentious point. Some investors prefer to know one selected small area extremely well and concentrate their investments in that area only. On the other hand, many experts propagate diversification so that in case there is an issue with that area or segment, your other investments don’t get affected.
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