Real Estate Investing in Uncertain Times

As recently as a decade ago, real estate was the most popular form of investment. Investors all over the country couldn’t get their hands on real estate properties fast enough. This created a huge boom in the real estate market, and people everywhere were suddenly enjoying huge returns on their investments. Unfortunately, this created a false sense of security and expertise among the investors. The problem became that, despite their lack of experience and actual knowledge, they were still finding success and earning huge profits. This, combined with severely irresponsible practices on the part of lenders, led to the huge collapse in the real estate market.
Since the collapse, the real estate market has struggled to recover, largely because a sense of fear and a lack of trust have become associated with anything related to the world of real estate. Although it may not seem like it, this will actually prove to be a positive for the business of real estate in the long run. The new environment in the business eliminates most of the inexperienced investors that helped to cause the problems in the first place, and, more importantly, it frees up more opportunities for those who know how to work with the market.

Is Real Estate Investing is Always a Good Idea?

Despite the ups and downs that the real estate market has always gone thorough and despite the recent collapse in the market, it remains true that investing in real estate is often a good idea. The biggest fear expressed by potential investors in real estate is that they will invest in a property that will end up losing value instead of gaining it. While this might be true in a limited time frame, the fact is that, over time, well-informed investments in real estate generally increase in value. Many investors were spoiled by the quick profit they were able to make during the real estate boom, and perceive the current slower process as a sign that the market is now no longer a smart investment. This is patently untrue. The process may have been slowed, but real estate remains as smart and as potentially lucrative an investment as ever. Now you also need to be smart about the investments.

Do Not Make Assumptions About the Market

Perhaps the single biggest flaw in investment planning that led to the collapse of the market was the failure by too many investors to consider any negative changes in the market. Too many investors got swept up in the “flipping” of homes, a process that depends on a quick turnaround time between the purchase and sale of a property. The reality is that every property is saleable. The question is how long it will take to complete the process.

In the current market, the turnaround time for properties has increased, meaning that you need to expect and be prepared to hold on to a property for an extended period of time. When you decide to invest in real estate, you cannot go into the process with any assumptions. The biggest assumptions investors make is that a qualified buyer will be found easily and the property will be quickly sold. The problem with this plan is that both of these are far from guaranteed. The collapse of the real estate market and the subsequent effect this had on the economy in general makes it much harder for buyers to qualify for a loan. What this means for you is that you need to be prepared to go through at least a few potential buyers before you get to the right one. The idea of the process taking longer than expected is a major deterrent for some investors. However, you should always keep in mind that, although the process may take longer than it did just a few years ago, the possible income is still there to be made.

Income from a real estate investment can pay off the mortgage for a property. In this case the pressure to sell is reduced considerably. While this is not always possible, it is something that you could look at when considering investing in real estate.

Have a Clear Plan for the Future of Your Property

One of the biggest problems that occurred during the most recent real estate boom was that it was almost exclusively a buyer’s market. What this means is that it was the desire to buy, not to sell, that was driving the market. An environment was created in which properties that went on the market were immediately flooded with offers. A sense of short supply met with high demand led to a feeding frenzy in the market in which everyone was on a constant search for the next property to buy, a phenomenon that caused the prices of homes to continuously rise. The rate at which properties changed hands was overwhelming, spurring the huge growth of investors who “flipped” properties. While this was definitely a lucrative business model, it was also one that depended on a completely unpredictable variable: the constant supply of buyers. As soon as the flaws in the practices of lenders were exposed and funds were no longer so easily available, the market was suddenly flooded with available properties that nobody was buying, leading to the bottom falling out of home prices.

When you decide to invest in real estate, you need to have a clear plan that carries you from the moment to the property is purchased until the day it is sold. This plan should primarily include all potential expenses, such as all necessary repairs, improvements and all monthly expenses. Although this may seem obvious, the shocking reality is that these factors are often times not considered by investors, and they are left with a property that no one wants. Such a property can quickly ruin your credit and drain your funds.

Remember the Basic Principle of Real Estate Investing

No matter what changes in the world of real estate, no matter when or where you are looking to invest, the single most important principle of investing will always remain true: buy low, sell high. During the real estate boom, many investors became so desperate to purchase any and all properties that they made many unintelligent investments. Basically, any property was considered a good property regardless of cost. Every investor should never forget that the purpose of purchasing a property now is to sell it for profit in the future, while receiving income during ownership. Real estate investing cannot be an emotional process. No matter how good a property may seem, it ultimately comes down to potential future earnings. Always remember that there will always be another investment opportunity, so you should not be afraid to walk away from a property if the price isn’t right.

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