Posted in Blog  
  on Mar 22, 2016

How to Break Into the Real Estate Investment Business

It can be difficult to know how to break into real estate. Real estate isn't like buying stock or other commodities — it's a significant investment, and turning a profit requires regular and steady effort.

How can a novice to the business get off to a good start with real estate investments?

Consider Your Goals and Your Scale

Not all real estate investment is the same, or even at the same level.

Do you want to buy plots of land and then develop them?

Do you want to serve as a landlord or a property manager?

Do you plan to remodel a property and then sell it?

Do you want to buy up several neighboring blocks of property and develop them increase their value collectively, or would you rather start small?

Take your time to consider these options, and don't feel bound into one of them too early.

Real estate is a major investment. You need to be sure you have a plan beforehand, so you can maximize your ability to make a return on your investment.

Do Your Research

Conducting your research, into matters both large and small, will make you more likely to come out on top.

For instance, you might start out by researching law and tax codes.

  • If you plan to work as a property manager, determine the licensure requirements in your area.
  • If you want to develop or remodel a property, identify the steps necessary to ensure everything's up to code, and confirm all local authorities are on board with your plan.
  • Which property taxes can you expect to pay on your property, and are you ready to pay them early on in your business, when you're likely not turning a profit yet?

Researching the finer points of your investments will also bear fruit.

If you're looking to get into housing, for instance, determine which demographics are common in your area, and how you can best design or remodel units that cater to their specific needs.

Which development plans are being considered for properties near the ones you're thinking of buying, and how will this affect your property values five, 10 or even 20 years down the road?

It's unlikely you'll be able to plan for every contingency or educate yourself enough about everything before you purchase the property.

You'll also learn swiftly that every potential property comes with drawbacks, but if you do your research and keep your eyes open, youcan make wiser decisions that maximize the return on your investments.

Think of It in the Long Term

Thanks largely to the media, a lot of people who are new to real estate are very interested in "flipping" houses or other properties: buying them, taking steps to greatly increase their value, and then selling them at a tidy profit.

Flipping houses is possible, but it's also highly difficult. Real estate is like all other investments: The more rapidly you expect a turnaround, the more risky the investment could become. If you plan to turn the property around quickly, you may wind up with an avoidable loss, one that would be negligible if you held onto the property longer.

Instead of planning to flip your property, think of the investment as something to hold onto for several years. Be prepared to develop your property and take care of it: You might choose to rent it out to prospective tenants or businesses. Keep in mind you can look into selling the property when you know you're in a seller's market and you're absolutely ready, but before then you run the risk of a great loss, which you might not be able to sustain this early in your business.

Diversify Your Portfolio

Some people may want to stick to a certain area of real estate investment — developing commercial properties, for instance, or working as a residential property manager. However, if you're new to the field and unfamiliar with the market forces in the area, you might be more interested in diversifying your portfolio.

If you have the time and attention to spare, work with a few disparate projects to give yourself a feel for what the market supports in an area, as well as what you best enjoy doing as a real estate professional. You'll also avoid several destructive market forces that have the potential to wipe out your entire portfolio.

After a few years of work — again, don't forget you're creating a long-term investment — you'll be able to make an intelligent decision about how you want to specialize your investments and focus your attention.

Alternately, you may decide to maintain a diversified range of real estate investments and projects, which will be more resistant to downturns in the market.

Breaking into real estate can be daunting for a novice — especially with so much money changing hands — but it's not impossible, and it can be highly lucrative.

Go in with a plan, do your homework and prepare for the long term, and you'll already be head and shoulders above many of your fellow investors.


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