The real estate market, like all the economy, took a serious hit from the 2020 pandemic and we don’t know what lies ahead. Investing in real estate is always a good choice, people need housing no matter what, but you must be very wise about it. Here are five essential rules to guide you through these difficult times.
Study the market and keep an eye on it
Real estate is not like the stock market where you can check figures and trends at the touch of a button. When it comes to real estate, the situation in one part of the country can be completely different from another part of the country or, indeed, another area of your state. Real estate markets depend not on general economic trends, but on local ones. When a major employer in an area is closing down operations this will have a negative impact on the housing market. You need to look at unemployment figures and trends, as well as other real estate projects in an area and see how they might impact your investment.
Many times investors prefer to buy locally although having your properties under your eye never helped anybody as you cannot influence the market.
Get out of your comfort zone and look around, Familiarity with an area may affect your judgment and drive you to make unwise investments. Shop around and identify other promising markets.
Set a clear investment strategy
Being a real estate investor is a smart way of achieving financial independence, but only if you take a business-like approach to it. When you start a new business you set up a business strategy with very-well defined goals. You need to be realistic on both investment and revenues. There’s no place for wishful thinking, hunches and hoping for the best. That’s the road to financial ruin, not independence. Before investing in a property, look at the numbers carefully and analyze the returns it needs to generate for you.
If you’re in it for the long haul, set yourself a multi-annual strategy. Think about the money you need to make this year so you can afford to invest more next year and so on.
Diversify your portfolio
Don’t put all your eggs in one basket. Even if you have your eyes set on a particular city where the market is booming at the moment, refrain from investing all your funds in that one place. Anything can happen, from local conditions reversing the trend to the market itself peaking. Keep in mind that it usually takes months until you realize that the market is actually going down. You don’t want to risk having all your funds tied up in a single market as you may very well end up in a situation where the cash flow is not enough to cover your costs.
Stay away from speculative gains
That’s a rookie mistake in the real estate world, investing in a hot market hoping to make a lot of money in a very short time. This can be fatal to your dream of financial independence, especially when you’re taking out a loan to invest in the housing market. Hot markets are dangerous as they can always peak sooner then you were expecting, basically leaving you in the red.
Instead of a hot market, choose a stable one, one that yields less but at a sustainable rate. To make money in real estate you need to think long term, taking into consideration the economic perspective of a certain area.
Use professional management for your properties
When you’re new to real estate investment you think you can manage your properties yourself, but frankly that only works when you’re buying another house down the road. Perhaps you can deal with that, although you might soon discover you’re way over your head in problems.
Hiring a professional property managing company is sometimes seen as an unnecessary expense, but it is well worth it. Professionals know everything from local laws and regulations and, more important, know how to deal with difficult tenants. They’ve seen it all already and they won’t fall for lame excuses for not paying the rent the way you might do.
Another reason why you should hire a professional company is that managing your properties yourself takes up a lot of time and will most certainly distract you from your own professional (and personal) life. You don’t want that!
To be a successful real estate investor means you need to study the markets in-depth before putting the money down on a particular property, no matter how tempting it seems. Don’t rely on general housing market analysis, study the local trends as they might differ from average expectations for the market, even inside the same state.
Make dure to have a diversified portfolio so you don’t go bankrupt if one particular market goes bust. Have a clear investment strategy in place and stick to it.