The concept behind any investment is to buy an asset with the hope of a greater return at a future date. In the case of real estate, an investment could be as short as 30 days or as long as 20 years down the road. What many investors fail to realize is that they are running a business and real estate is the means by which they can make money as an investment. Like most other investments, you need to take care of it and constantly evaluate whether or not it is appreciating or depreciating in value. If you start to look at your portfolio as a whole and view the holdings as the real estate investments that they are, you will start making better decisions.
Before you make any real estate purchase, you need to establish what you want out of the transaction. If you establish a clear goal for every transaction, it will give you a road map for how to handle the ups and downs that will come your way. If you know you are only looking at the property as a short term hold, you can do appropriate work make your focus short term. If you want to flip the property, you can spend money on the roof, windows and floors to give you the maximum return at a later date. Without knowing exactly what you want out of the property, you run the risk of making rash decisions that you may end up regretting.
With every offer you make, you have to determine the risk vs. reward of the transaction. There is nothing wrong with making a small profit on your investment, but the outlay has to be proportionate with the return. If you pit the expected return vs. available returns in the stock market or elsewhere, the real estate vehicle has to exceed it or you should pass. You don’t get credit for the number of transactions you do over the course of the year. Sure, it is nice to gain contacts and build relationships with people in the business, but not at the expense of risking more than you know is right. Again, the goal is to make your money work for you, whether that be for next month or next decade.
The reason people invest in real estate is that they feel they know the business as well or better than the other investment options out there. They also know that they have a much greater chance at hitting a home run as opposed to the stock market. You can occasionally hit the jackpot on a penny stock, but those are few and very far between. If you treat real estate like a business and don’t take foolish risks, you can compound your real estate portfolio until it pretty much runs itself. If you constantly remind yourself that you are investing your money with the hopes of a greater return, as opposed to competing against other investors in your area, you will do much better in the long run.
The idea of being a real estate investor can be a pretty cool concept. With this comes responsibility to look at it as a business and not worry about what everyone else is doing. If you treat every property like the investment it is, you will become a much better investor.
