Strategies for Investing in Real Estate

Investing in real estate without the knowledge of fluctuations in the property market can be extremely risky. Real estate investing is one of the most lucrative and wealth-augmenting businesses with minimum initial investment. It is essential to invest heavily in market knowledge before starting in the real estate investment business. All types of real estate investments are greatly influenced by the market trends and the country’s general economy. An informed real estate investor can still reap profits despite the uncertainties of the market. There are many terms to describe the fluctuations in the real estate markets, such as hot versus flat, rising versus falling, and buyer versus seller. An informed real estate investor will have to use the right strategies to make profit in the ever-fluctuating markets as well. Unlike the stocks and commodities markets, real estate markets do not fall or rise as rapidly. This is part of the appeal of real estate investing.

Basic strategies to limit risk in real estate investment
Some basic strategies can be used successfully for profitable deals in all types of market conditions.

1. Study the local real estate market. The local real estate market is a great indicator of the large-scale trends. Global, national, and regional trends also influence the neighborhood property markets. Take the assistance of an established, professional real estate investor for a hands-on experience and study of these trends in the target neighborhood markets. They will not only help you, but also teach you how to interpret the market indicators. This knowledge and the property-related information would help in making a correct judgment for a profitable decision. Determine the average length of time of the houses in the market in the current month versus the previous month or previous year. This gives a clear indication of the market trend for an investor to strategize accordingly.

2. Inventory and seasonal trends. The number of properties or inventory offered for sale at current time is a good indicator of current market trends. If the inventory is low because of building or geographical restrictions, high demand will lead to rising prices. Rising markets are a delight for sellers; they often capitalize on new listings. This gets them a premium asking price even for the under-construction properties. Although properties sell the year-round, there are seasonal fluctuations in the inventory. There are fewer listed properties in winter than summer, while the spring season sees a spurt in property listings. Resort destinations follow seasonal trends. An intelligent real estate investor will market properties aggressively in the active spring or summer season and reduce prices during the winter months, when the sale drops considerably.

3. Falling markets. Real estate investors know that a weak market can offer extraordinary deals. A flattening or a cold market offers properties with falling values. There is a glut of inventory in the market, with panicky and motivated sellers to sell their properties as quickly as possible. The seller may want to sell their property to move out of the area or to recover finances or for any other pressing reason. A savvy real estate investor can make a profit by offering to buy a property at below-market offer, which a motivated seller will gladly oblige.

4. Flipping. It always is better to know the market and purchase a property at a price low enough to net an eventual profit, even in a flattened market. Flipping the property is the best way to make money in a bad real estate market. In flipping, the property is owned for a very short while by the investor, before it changes hands. A real estate investor should speculate for the property appreciation using this low risk investing.

5. Market speculation. Real estate markets do not change overnight but do show signs of slowing down or turning several months ahead. National economic trends, such as rising interest rates, sweeping tax change policies, depreciation rules for real estate investors or homeowners, growing unemployment, oversupply of houses, or a change in demand due to living conditions affect the real estate market. If the market rebounds after a purchase, then there is profit. If the market takes a downturn after a purchase, then it may result in loss. An informed real estate investor should study the trends and take remedial action immediately to guard against losses. 

6. Exit strategies. A smart real estate investor should plan on how he will exit the property even before purchasing it. Instead of guessing the future of local property market, make a back-up plan to quickly resell the property for a constant cash flow.

There never is an ideal real estate market for investing, but opportunities abound in all types of markets. Profitable real estate investing places a premium on the ability to assess the true value of a property, as the purchase must be made at a steep discount to allow for a profitable sale later.

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