The Fundamentals of a Successful Real Estate Investment
Real estate investing is a viable revenue source for those who get it right. There are big time financial benefits, both short and long-term. What can be better than financial freedom? A common reward for savvy real estate investors.
It is important to note that the real estate market has not declined due to the COVID pandemic. Many budding real estate investors may be frothing at the mouth, ready to jump on massive reductions in home prices.
A recent study by the Federal Reserve Bank of St. Louis, new listings declined by 40 percent in April 2020 with a 17 percent decrease in homes sales. However, there was not much of a dip in home listing prices. Nothing compared to the recession price declines we saw during the 2008/2009 recession.
Why does this matter? Real estate investment will be less about “buy low, wait for market recovery, and sell high.” These days it will be more about time, effort, adaptation, and strategic action.
“Real estate today needs solid strategies and execution that support the asset. The days of buying real estate and making a fortune by just waiting or doing nothing are over.” Paul Daneshrad, Founder and CEO of StarPoint Properties, a company that has acquired properties with an aggregate value of over $1 billion, explained.
To have success in real estate investment with portfolio scalability at the forefront, investors need several core fundamentals. If you make strategic decisions about your real estate now, you can leverage the equity you’ve built in them through reverse mortgages from companies like All Reverse Mortgage. Let’s take a closer look at the fundamental anatomy of successful real estate investment.
Real Estate Investment Is 100% Strategic
Real estate investments need to be strategic. This means doing due diligence and researching several factors prior to investing. Most important research includes a thorough real estate market analysis and property analysis.
A real estate market analysis includes:
Analyzing core characteristics of the investment property. Core characteristics are square footage, number of bedrooms and/or units, property age, amenities (pool, outside area, fireplaces, storage, etc.). Remodel and renovations should also be considered.
Location analysis for the property. The property’s location is very important to include in your real estate market analysis. Location aspects to research include main road proximity, schools, facilities, public transportation, and more. You also need to understand the neighborhood. Is the neighborhood attractive to buyers and/or renters.
Comps for rental properties. Comparing data in terms of rental investment real estate is important. What are the vacancy rates for comparable properties in the area? What’s the average rental income? And be ready to adjust comps accordingly to get maximum value per square foot.
A property analysis is also critical. Investment property calculation includes rental income, rental expenses (utilities, repairs, HOA fees, insurance, property and income taxes, closing costs, etc.), and ROI.
Calculating data and getting a clear picture of your real estate investment ROI is a must. Return on investment of an investment property means understanding cash flow, cash on cash return, and cap rate. The real estate market and property analysis ensures investments are 100 percent strategic.
Research The Market Cycle For More Profitable Investments
The real estate market is never linear. The market has cycles, and researching those cyclical shifts can net you more profitable real estate investments. Market cycles are for the most part unpredictable, but the average real estate market cycle is around 18 years.
There are four stages to each cycle:
- Hyper Supply
There are also factors that can affect the real estate market cycle and the four stages outlined above. Demographics, interest rates, economy, and government policies all play a role. Right now, interest rates, economy, and government policies are impacting the current real estate market cycle.
Researching the market cycle and knowing when to take action is the hallmark of a successful real estate investor. With this in mind, you can leverage market cycles to maximize investments via cash flow, capital growth, and equity.
Invest In Positive Cash Flow Properties To Scale
Another fundamental of a successful real estate investment is to invest in positive cash flow properties. Positive cash flow properties can help an investor scale his or her real estate investment portfolio for maximum profitability.
How? Instead of investing only in properties that don’t create cash flow, invest in a few properties that do. This allows investors to build wealth while growing investment capital as the rental property matures in the market. You can even divert positive cash flow property profits toward mortgages and other property expenses.
It is, however, critical to do your due diligence and have a strategic approach when it comes to rental properties. A real estate market analysis and property analysis needs to be done. This will help you find rental properties with high demand.
Have A Long-Term Real Estate Investment Mindset
This is a very important fundamental to consider as a real estate investor. Capital appreciation is the aim because there are no successful real estate investors with short-term thinking. To be successful in the investing game, you need a long-term investment mindset.
To build wealth as a real estate investor, capital appreciation needs to be at the forefront of every investment decision. It is all about building a capital business. Buying properties and holding them for maximum capital appreciation is a profitable strategy.
And with a few positive cash flow properties building your wealth in your portfolio, you can sit on non-earning properties longer. Therefore, portfolio balance is a must when you invest in real estate.
Wrapping Up . . .
From understanding the market to strategic investment actions, the above fundamentals of a successful real estate investment may prove valuable. They are not the only factors to consider. They are, however, among the most impactful when it comes to savvy real estate investments that build wealth. What’s your investment strategy?