Investing in real estate is really beneficial only if the investor knows how to invest and where to invest. No investment can be successful if the investor does not have related information and understanding. Real estate market has open opportunities for anyone who wants to make big profits, but purchasing and selling of real estate is complex and risky as well. Real estate investments are the perfect way to increase wealth. Real estate investments entail the ownership, purchasing, managing, selling or renting real estate for earning returns in the form of profit.
After cash, stocks and bonds real estate is the fourth most liquid asset. It has however, relatively limited liquidity as compared to other investment options available. There are a few basic factors which make investing in property as complicated. Without knowing these factors in depth, one should not invest in real estate.
Important factors for consideration when investing in real estate:
Cash flow dependency
Real estate investment is highly dependent of abundant cash flow. Lack of cash flow or negative cash flow can lead to the early sales of the property which can result in lower profits or losses.
Investment in real estate requires high capital. It is suggested by the financial advisors that at least one fourth of an individual’s investment portfolio should be based upon real estate investment. For this, intensive capital may be required. Capital can however be gained by mortgaging the properties. Leverage can reduce the amount of the capital required for investments in real estate.
The local and national real estate markets
It is important to evaluate the local neighborhoods and the real estate market. Although international markets do not have a direct effect on the national or local real estate market but it is advisable to consider the trends in the global view as well. Knowing the market clearly helps in making a wise decision at the right time.
Timing is important
It is essential to understand the importance of the right time for the right decision. If the market seems to be volatile and the national issues or problems seem to be getting out of hand, an investor should immediately get rid of the real estate before it loses its value and result in a loss. Unlike investment markets for other financial assets, the real estate markets in most countries are not very organized.
How to benefit from information asymmetry
In every business transaction, one party has always the upper hand because of more detailed information or experience. This is called as the information asymmetry. When a person invests in the real estate market, he should get as much information as possible when entering into a business deal or transaction. This involves an imbalance of power which benefits the person with more information. Be that person in a transaction.
Learn about each source which lists investment properties
- Private sales
- Real estate agents
- Multiple listing services
- Public auctions including estate sales and foreclosure sales
- Bank owned departmental auctions