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10 Things Every Property Investor Needs To Know
Unlike Mathematics, there are no absolute correct answers to property investments.
If things can be broken down to such detail, every degree holder will be a real estate magnate.
There are however, rules of property investing that investors keep in mind.
These could serve as guidance or a timely reminder to keep investment decisions as pragmatic as possible.
Other than the 2 prime directives of cash flow being king and that we can never time the markets to an exact moment, here are 10 of the most critical rules.
1) Capital is required for investments
There is no investment that requires no money. Even hitting the lottery requires you to buy a ticket.
You might find advertisements all over the place talking about investing with no money down.
This does not mean that you don’t have to dig into your bank account, it just means you do not have to do that up front.
That capital has to come from somewhere somehow. No one except a sugar daddy would give you a property for free.
If you want to make money with properties, be prepared to spend money.
2) Using leverage and other people’s money
If you are to go at it alone, you will not be able to even get past the front door of most investment opportunities.
When you first get started, you might only think about going to a bank to get access to finances.
But once you start buying more and have your eyes on bigger properties, partners with cash will show up for you to consider.
It’s not uncommon for angel investors or sleeping partners to get involved in real estate deals
They become the people behind the curtains funding operations while a partner (maybe you) keeps business operations moving smoothly forward.
3) You are not an island
Property investments tie up a whole host of professionals.
These include, property agents, lawyers, accountants, mortgage brokers, valuers, lenders, etc.
You have to build relationships with all of them to expand your network.
Credible access to these networks also means that you can get the best advice in the most timely manner on investment opportunities.
Often times, many would even approach you for partnerships and joint ventures.
Depreciation is an accounting rule that writes off paper losses against your income.
This term has gain a lot of publicity in recent years.
But property investors have known of this for ages. It’s just that those who are new to investing are not familiar with the word.
Check with your accountant on the specifics if you have to.
5) Best leave industrial and commercial properties alone when you are new
If you are new to property investments, it could serve you well to leave these categories of properties alone.
If you really have to get in on such properties, it is best to get an experienced partner on your first commercial investment.
There are just too many minefields that a new entrant into this space is unaware of.
6) Buy your properties in places you know
It makes absolutely no sense to write your cheques for properties so far away and which you will never see.
Unless you run a multi-billion dollar property empire with offices all over the world with trustworthy people working for you, you should only buy properties in places that you know.
The best choices are local.
In this way, you will have better knowledge of the area you are buying in and will also be able to manage it better.
If you can’t succeed in real estate with properties on your home turf, what makes you think you can do better in an area you are not familiar with?
7) Be an active manager
You could be thinking about sitting on a beach bench with a laptop on paradise island everyday while the cheques continue to bulge your bank account.
That is just a scene from the movies.
Take a hands-on approach in managing your properties to learn the trade better.
This allow you to react fast to problems and better delegate work to your employees.
You would also be able to identify which areas of operations would benefit the most from improvements that cost money.
8) Strong leases
Most of the time, you will only learn about how important your lease really is until you run into problems with tenants. That could be too late to do anything about them.
Leases are your assets.
It can not only protect your investments, but also serve as an indication of your property value if a time comes for you to sell it.
Get a good reputable lawyer to draft your leasing agreements and seal them in a safe for added measure.
Tax planning is always critical to organizations that mean business.
Depreciation which was mentioned previously has to do with tax matters.
As different territories have different tax practices and laws, it is best that you check with your accountant on how to plan your tax properly.
The point is that tax planning is something your should not overlook in property investments.
Taxes that you legitimately avoid paying from tax benefit or delayed can help you make even more money in the long term..
10) You are responsible for your own success
A lot of people are petrified to make decisions to invest because of uncertainty.
You must get out of this box if you want to be a successful investor.
Don’t blame your spouse for not giving emotional support or the government for putting up regulations on investments.
A lot of times, the best investments are those that was contrary to what everyone else think. And the deals of a lifetime often only arise out of adversity.
You have to make your own judgements based on information and opportunities.
This way, even if you fail, you can take responsibility and learn from mistakes so as to avoid repeating them in future.