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9 Proven Guidelines For Real Estate Investing That Have Survived The Test Of Time
If we are to break down any form of investing into the most basic rules, it just comes down to 2 key areas.
- Know what to look for
- and know what to avoid
The tricky part for everyone is how to know which side an investment opportunity falls into.
The main reason investors spend so much time researching and contemplating whether to put their funds into something is because they are unclear on what they are looking for and confused on what they want to avoid.
This means that whenever an opportunity arises, you only have to spend at most, 1 minute, to do a mental screening on whether the deal is worth following up or not.
To operate with that kind of confidence and conviction, you have to decide now on where you stand on many investment issues.
Once you have these choices made in your heart and head, screening deals are so easy. To help you with conceptualizing these rules of property investing in your mind, these are 10 proven guidelines that have withstood the test of time.
1) Specialise in a niche
You know what they say about diners who eat at a buffet?
They don’t know what they want. That’s why they want to have a bit of everything.
Although this will do no harm when we are just talking about a dinner, a mindset like this will be suicidal when it comes to investing.
The richest people in the world accumulate their wealth from being a specialist in one area. This is a good indication that the focusing on a niche is more likely to reap you success rather being a jack of all trades.
2) Buy bargain priced properties
You are not going to be living in it. So who cares if a house is not appealing in your eyes?
By only buying properties that are undervalued, you immediately eliminate the most hated mistake of paying too much.
The most basic way to spot these properties is so effective that even a newbie will be able to apply it.
Look at recent transactions in the area and work out the average price per square feet. If the market is willing to pay that price for a house in that area, finding one that is selling at less than the norm makes it effectively undervalued.
There are of course many other factors that goes with valuing real estate. But the per square feet trick is good enough to give you a feel of how attractive a deal really is.
3) Acquire properties that can be easily improved
If you are buying a house at a bargain price, the likelihood is that it is in a bad condition. This works perfectly into your hands as you will be able to increase it’s value by remodeling it.
Why buy a modern house at market price when you can buy a house in bad condition at a basement price and spend a little money to bring it up to market price.
The rooms that are your prime target for overhaul refurnishing are the kitchen and bathrooms. Interestingly these are the places that makes the biggest impact on perceived value to the beholder.
4) Finance your investments with low costs fixed rate funding
If you are taking on a mortgage on an adjustable rate, it means that your interest will move in tandem with the market.
This means that you will never have the chance to beat the market.
Correct me if I’m wrong here. But isn’t investing all about beating the market?
So taking on floating rates will not do any good for your investments. You live in fear as well when markets are volatile. At least fixed rates can give you certainty and the stability to plan out your financial activities.
Only deal with motivated sellers
There are many reasons why someone would have a big reason why he has to sell his property by a given time.
Don’t waste your time debating whether these things are real or not.
I can tell you they are real. They exists in real life, even in booming markets.
You want to deal with them as they are more likely to be flexible on terms and compromise on price.
Remember that you are an investor with no emotional attachment. So don’t bother with stuck up sellers who think that their homes are worth twice the market value just because it has a great view. The view means nothing to you. Just move on.
When buying landed property, look for sizable undeveloped land
A huge number of detached houses only take up to 40% of the land they sit on. The remaining 60% is used as a garden or something.
These are good opportunities.
You want these proportions so that you can expand the floor area and build-up area of the property, provided there are no zoning restrictions.
Also don’t ignore the possibility of building upwards. Do take note that in some areas, houses higher than 2 levels can mean grouping them into a different class of property.
Locations make a property valuable. In very few instances does that go the other way around.
Many factors make a location desirable. The key areas are always about amenities and infrastructure.
Once you have identified your target market, you will have to work out what are the desirable features they are looking for when looking for an apartment to rent. Some obscure locations can actually be very desirable to certain niche market segments.
Don’t let the market dictate whether you should buy
When everything is booming, it will be difficult to resist the temptation to buy. And when markets cool down, you instinctively want to wait for further depressed prices.
The old saying is that we should “buy when others are afraid to buy”. That is not fully correct. Because if you clearly know what you are looking for, it does not matter whether others are buying or not. You just take action.
Find tenanted properties with below-market rental
This is an easy one to profit from. The odds are that tenants who are paying below market rental already knows that they are doing so.
And they probably expect a letter in their mailbox at anytime informing them of an upward rental revision.
The even better part is that the purchase price of such properties are calculated using the depressed rental collection. You get a double whammy of low purchase price, plus an easy way to increase rentals.