While it is technically possible to profit from a deal without thoroughly understanding real estate investing, those stories are often the exception to the rule. If you want to succeed at building wealth through real estate, it is vital that you do your research and build your knowledge of the industry first. Real estate investing can be a very profitable business, but only if you have a solid understanding of the market and do your diligence before purchasing properties.
Steven Taylor of Taylor Equities has compiled a checklist below of a few aspects of real estate that everyone should have a solid understanding of before entering the business. If any of these concepts seem foreign to you, you should consult with a mentor or expert before investing.
Learn how to evaluate potential properties.
The most important aspect of understanding real estate investing is knowing how to evaluate a property you are considering investing in. Before you enter the real estate industry, take the time to study evaluation techniques for acquiring buildings. As you build your investments, it will be important that you only add assets that contribute to the big-picture of your portfolio. There are many resources that can teach you how to inspect properties, research potential areas, consider neighborhoods, and integrate comparative market analyses with your plan. Ultimately, you will want to determine a property’s profit potential before buying in.
Understand the many ways in which you can profit.
Before investing in real estate, you should be aware of the different types of cash flow that come with real estate investing. The most common way to profit from a real estate investment is known as flipping – owners fix up investment properties and then sell them at a higher price. But, there other factors to consider when looking at cash-flow, such as your annual income, taxes, tenants, and vacancies. To understand real estate investing, you must understand the plethora of ways that your cash flow could be affected.
Be aware of the reality of leverage.
For many new investors, purchasing a property without a down payment can sound very appealing. But, this real estate investment strategy can come with many risks. When an investor doesn’t have enough capital available to purchase a property outright, they may borrow money to acquire the asset. In some instances, investors can utilize financing as leverage in order to purchase a unit or building. It is extremely important that investors have a solid understanding of the risks that come with using leverage before taking on any debt.
Understand the many types of mortgages available.
To have a full understanding of real estate investing, you must understand the many different types of mortgages available. By taking the time to research the variety of mortgages on the market and the pro’s and con’s of each, you can secure your investment from the beginning. Take the time to shop for the best mortgage with the interest rates that will benefit you the most. Always be careful with mortgage deals that sound too good to be true – if there is zero down, and adjustable rate, or a deal that just sounds unrealistic, take a second look. There should never be a rush to invest in real estate. Take your time, and consider all of your options carefully.