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5 Real Estate Investing Fundamentals

June 17, 2021

Many people are interested in real estate because it is a form of investment that is likely to be profitable. 

However, when you start off it does not mean success will be automatic. Creating a fine-tuned skill set, and understanding the fundamental principles are the basics of doing well in real estate investing.  

If you are just beginning, where do you start?  

Setting yourself up for success starts with understanding the process and minding your due diligence.  

 But if you’re unsure where to start here are the five investing fundamentals you need to know.  

  1. Have realistic expectations 

Whether you plan on Flipping houses, wholesaling, or purchasing rental properties, stay grounded. Despite how instantly HGTV makes house flips seem...it doesn’t work that way.   

Property TV shows may be addicting, but they create an illusion of ease and speed that does not apply to the reality of real estate.  

The instantaneous way that TV shows transition a house flip from needing work to complete cuts out the parts of the process that are time-consuming, costly, and need lots of attention to detail.   

Instead, remodeling takes hard work, detailed planning, and can be very costly. Flipping a house takes time and effort with clear direction, organization, and a business-first mindset.  

It’s important to curb your expectations and understand the reality of the time and energy this industry requires.  

The reality of real estate investments is not always as glamorous; often renovations air on the practice side rather than aesthetic or cosmetic changes because the ROI is ultimately priority.  

  1. Risk awareness 

Be prepared for an imperfect market.  The housing market isn’t always the most stable form of investment, but one thing is clear: people are always looking for housing.  

Making the right investments can be tricky because if you aren’t prepared you can end up with a net loss instead of a profit.   

Just because a purchase is cheap doesn't mean it is a good investment. A property can be sold low due to poor location, structural issues with costs that outweigh repairs, and many other causes.  

It's crucial to recognize the signs of a bad real estate deal. You should understand common real estate investment pitfalls so that you do not make rookie mistakes or lose money.  

The challenge lies with the investment process rather than investing in the wrong property.   

  1. Industry contacts 

Real estate investing is not simply based on economics. Communication is a major component to successfully managing the details of your investments. 

How will you find more referrals? How can you increase your profit margins? Where can you find the best contractor? This information will be accessible once you have developed relationships with the right people.   

Buyers, clients, contractors, investors, mentors, sellers, wholesalers, the list goes on. Everyone involved in the process of real estate investments should be viewed through the lens of networking. The more people you positively interact with, the more business you can acquire.    

Keep open lines of communication with contractors, appraisers, accountants, and more. Connections are the foundations to finding market-worthy investments and availability to opportunities that may otherwise go unnoticed.   

Connecting online with industry leaders, as well as meeting them face-to-face in person are equally as important.     

Make authentic and meaningful connections with contacts who have common goals is the best way to develop insight, opportunities, and resources.    

  1. Working capital 

Investing in Real Estate is a high initial expense, and it's important to be prepared for unexpected expenses and create a cushion for losses.  

Not all flips or property investments come out the other end with high earnings- especially for beginners.   

For example, many first-time house flippers find that they need to adjust for the reality of rehab expenses in comparison to their initial estimates.   

A great example of this is when our COO, Mike Banks worked on his real estate investments and found out that his estimates were inaccurate. Because he had incorporated a margin for error, he knew how to financially handle it. If you are interested in learning more watch Mike’s video here 

Understanding that capital is king and having the cash flow to avoid road bumps means obtaining access to working capital.  

The best way to have access to business capital without cutting into profits is using business credit.  

It is much cheaper than traditional business loans that have hard deadlines and cut into a percentage of profits.   

When using business credit lines to fund an investment, business owners gain financial cushion, streamline financial purchases, and better manage expenses.  

Additionally, using business credit lines will offer cardholders rewards and incentives for use of business cards. 

  1. Location matters 

“Location, location, location” - although the term is a reference from the early 2000’s the meaning behind it still holds true. This is the mantra many real estate agents still value when addressing homes worth investing in. 

Due to their location, homes can vary widely in value so it's important to understand the impact of environment when making a purchase.  

Appraisers consider property location when pricing a home but more importantly, homeowners will be choosy when it comes to where a piece of property is located whether this is a single-family home or a multi-unit.  

Value of property will rise or fall depending on the try of activities that exists or develop near it. Many people want conveniently located homes within walking distance of entertainment, workplaces, parks, and movie theaters.  

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