Investing Strategy & Tips
How Others Success in Real Estate Investing
By IncomeProperties
Dec 3, 2005, 15:08

As an alternative, we have successful investors who have never been on television, never offered seminars, and never been bankrupt. They're quietly at work in very community and many have amasses substantial wealth.

How do they do it? There's no magic formula that works in every situation. All deals are different, and it follows that each property must be approached with a fresh viewpoint to find the most profitable, practical, and coherent investment strategy.

The best answer seems to be that successful investors operate within a series of 14 observations, guidelines, and principles that define their decision-making strategies. Taken together, these considerations define a sensible, low-risk approach to successful real estate investing.

First, the central rule of real estate is that all properties are unique. The idea that no two properties are alike, what the real estate industry calls "nonhomogeneity", means that even properties which look similar - such as identical townhouses in a single subdivision - are actually distinctive.

Property prices are determined at one point in time under specific conditions through the agreement of a particular buyer and a particular seller. At any other point in time, with other conditions, or with different buyers and seller, values may change. A "good" price today may represent a poor deal tomorrow and vice versa.

Second, the purpose of buying investment property is to make a profit. If an investor can't raise property values or increase income by fixing up, subdividing, expanding, re-zoning, or whatever, a deal won't work. Investing is not a social calling, and the search for profits is not amoral, immoral, unfair, unethical, or unreasonable. Everyone, everywhere, seeks some form of personal benefit, whether or not that benefit is measured in cash terms.

Third, real estate investing is a business. It involves loans, deeds, brokers, lawyers, regulations, taxes, and all the paperwork and headaches found with any business. Unless you're looking for an expensive hobby, investing must be given the time and effort required by every successful enterprise.

Fourth, investing is competitive. There are always players in the marketplace looking for a limited number of prime properties. Because of competition, it's important to be prepared when solid opportunities arise, to analyze deals quickly and to have financing information and sources in place.

Fifth, most deals are made between equals. While seers and oracles search for "motivated" sellers, investors work within the far larger community of people who understand that the purpose of investing is to make a profit.

Sixth, property values do not exist in a vacuum. The market value of a well-maintained property can fall if the biggest employer in town closes, state funds for a roadway are eliminated, or an all-night service station opens next door. Because external influences are important, it's necessary to keep abreast of community changes.

Seventh, there will always be renters. Over the past 30 years we have seen a profound change in homeownership patterns. It was once true that with one working adult a family could afford a home. Now it commonly takes two workers in a household. In the future, unless we radically alter our social or marital arrangements, there will be no additional workers within the home who can contribute to its purchase or upkeep. As homes become increasingly difficult to afford, rental demand will rise.

What it means for investors is this: The demand for rental housing has always been present and there is little if anything in the future which suggests that the need for rental housing will significantly decrease.

Eighth, there are times and places where the best real estate deals are no real estate deals. Not every community at every moment offers solid investment opportunities. In such situations it makes sense to invest outside the real estate field. Houston residents who put their money in something as mundane as passbook savings accounts in the mid-1980 made more money than neighbors who invested in local property during that period.

Ninth, real estate investing is not risk-free. Values can go up and they can surely go down, whether measured in cash terms, after tax dollars, or real terms corrected for inflation. No one can guarantee future values.

Tenth, investor needs change over time. At different period in our lives we each have different needs, interests, abilities, and concerns - factors that influence investment choices. The deal that makes sense today may be less appealing in the future and vice versa.

Eleventh, leverage is an important investment tool. Investors look for leveraged deals, because they create the opportunity to magnify the impact of investment dollars.

Twelfth, different investors see different opportunities. By definition, because there are different perceptions of value and potential, there is a market place.

Thirteenth, investing requires give and take. There are few situations where one side or the other can dictate terms. Real estate bargaining is best seen as a process where all sides must receive some benefit.

Fourteenth, investing is a complex process that requires the use of specialists. When pulling deals together, real estate investors normally work with brokers, lawyers, termite inspectors, loan officers, surveyors, structural inspectors, tax advisers, contractors, and other experts. To be successful, you need the availability of such expertise.

Do these principles and observations absolutely guarantee investor profits? No, but they at least suggest how investing can be approached with minimal risk, maximum sanity, and the most likely chance of success.

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