6 BEST PRACTICES FOR INVESTING IN REAL ESTATE WISELY
Real estate investing has become one of the best – and most diverse – ways to build wealth in today’s market. There are many different ways to enter into the world of real estate investing, and it’s important to do your homework before you jump in. There’s much more to real estate investing today than what is shown on HGTV, and understanding a few best practices for investing in real estate wisely can save you time and money.
The rise of popular cable television shows like Flip or Flop have made real estate a hot topic among those who want to invest. While it can be tempting to think that these shows give the real life view of real estate investing, that’s not always the case. It’s important to understand real estate investing does involve some risk, and the unexpected happens sometimes. Deals can fall through and flips can go wrong. So how does a person avoid being upside down on a deal?
Don’t Best Practices for Investing in Real Estate Change Over Time?
Real estate is constantly changing and evolving, but there are best practices for investing in real estate that will hold over time, and each investing win is an opportunity for another win down the road. Always be looking ahead with clarity of the vision of your goals and what you are wanting to achieve in the long-term. Veloce Capital recommends following these six best practices for investing in real estate wisely so they can help you stay true to your vision for the future and avoid unexpected pitfalls.
Practice #1: Set Realistic Goals
Everyone wants to be an overnight success story. The reality is, however, overnight successes are exceptions to the rule. Oftentimes it is a strong foundation that makes a good investment appear to be an overnight success.
It is important to set realistic expectations from the beginning. Real estate is an ever changing market and landscape. One way to keep expectations in check is to set short and long-term goals that are realistic for the market you are in. At Veloce Capital, we recommend using the SMART goal-setting system developed by Peter Drucker.
Make goals that are:
If you are just starting out, keep realistic expectations of what you can handle and invest. Don’t get sidetracked by investors who are snapping up deals left and right. It’s tempting to focus on the newest, shiniest deal without taking into account the other factors and investments you have in the works. Consider your goals, current finances, and the financial risk that is involved.
It’s also important to remember that real estate deals come in all shapes and sizes. They can be tailored to fit your goals and your comfort level. Just because one deal may not be a good fit doesn’t mean there’s not another deal just around the corner.
Practice #2: Know Your Market
If you’re just getting started in real estate, it’s important to know and understand your market. Different markets around the U.S. will trend differently. The real estate market in Los Angeles, CA, for example, will be a lot different than the real estate market in Austin, TX. Veloce Capital always does a complete market analysis before investing for its clients.
Knowing what the trends are – what is hot and what is no longer moving – can help you determine how long to hold on to a property and whether or not to invest long-term or flip. If the market is really hot, it may also be harder to find good investment properties with a good return potential.
When looking at long-term property holds and renting, it is important to know what the rental market is doing as well. In many areas around the country, the rental market is booming. This long-term strategy may be the better way to go in your current market.
Practice #3: Know Your Options
Investment options come in all shapes and sizes. The options are seemingly endless depending on where you are in the country. It’s important to look into your options and where you are comfortable coming in before diving into the markets.
One of the best practices for investing in real estate: Know your exit strategy.
First, look at your goals and determine whether you want to invest long-term or short-term (or a mix of both). This will help you decide on acquisition strategies that meet your needs. Some options for acquisition strategies include quick flips. Quick flips, or purchasing a house, renovating it, then placing it immediately back on the market, are one of the more trendy options currently due to shows like Property Brothers, Flip or Flop, and Love It or List It.
Quick flips can be great investments – if you have the capital and breathing room to make it happen. They are also one of the higher risk options. If you face setbacks and added costs, profit margins can creep down at an alarming rate, especially for newer investors.
Rental income is another very popular avenue to diversify your portfolio. Look for properties where the monthly investment (mortgage, maintenance, taxes and property management) are lower than the average rental income in the area. This can be a great long-term strategy and investment if you are smart about your costs vs. income ratio.
Airbnb and other on-demand rental platforms are also good options if you don’t want to deal with traditional, long-term tenants. You can also do simple long-term holds, which can be great wealth boosts over the years. These strategies are more susceptible to short-term fluctuations in the market, which are normal in the economic cycle but can be scary for new investors.
How Veloce Capital Developed Our Best Practices for Investing in Real Estate
Veloce Capital specializes in a different kind of real estate investment opportunity – one that allows our clients to invest in low risk, high return properties without lifting a finger. We take into account our clients’ goals, investment capital available and risk tolerance to find them the perfect investments for their situation. We specialize in investments that:
Preserve investor capital
Produce a higher return on investment
Offer tax protection
Diversify client portfolios
Provide flexible investments
Provide definitive timeline for the investor with a clear exit strategy
Practice #4: Inspect The Property
When you are considering investing in a property, it’s important to do your due diligence and check out every facet of your potential investment. This goes beyond just looking at the structure and bones to assessing market trends, ROI potential, goals and taxes. Take into account every consideration.
Be smart about your options and investments. If you are buying a property for a flip, it’s important to do your homework and make sure that the property is up to code and that any additions were properly permitted. If not, the city may make you remove the addition or go through the process of getting it approved. This will fall on you and not the original sellers. Doing your homework and checking out all aspects of the property are imperative to the long-term success of your investments.
At Veloce Capital, we thoroughly vet all investment properties, assessing the area, the towns around them, and state budgets carefully to locate the areas that are most desirable. The return on these areas won’t dry up, and investing only in these well-researched areas allows us to keep our rate of return higher than the cost of capital.
Practice #5: Be Smart With Your Money
It’s important to know where you are comfortable jumping in. You should absolutely have an end-of-day ROI on any investment you make. You want to be wise about where your money is going, what you are taking on, and the return you expect.
Investing requires long-term strategy. It’s not a get rich quick overnight scheme. Ask yourself:
What is my comfort level as far as dollars invested?
What time and energy do I have available for the footwork of real estate investing?
What’s the minimum investment I’m willing to make?
What is the maximum I’m willing to make?
What is my cut-off point for the investments?
What’s my plan if an investment heads south?
When you are investing your money, the ultimate goal is to make your money work for you. Taking the extra time at the beginning to settle these questions in your mind can save you money and headaches down the road. Here at Veloce Capital, we work closely with our clients to help them answer each and every question to their satisfaction – we’re truly their right hand service provider!
Practice #6: Know Your Plan
If you don’t have a solid plan, you will have planned to fail. Having an overall future goal is great, but without a plan on how to get there, you’ll never arrive at the vision you have for your financial future. Beginning with your starting point all the way to your end goal, you’ll need a road map and set benchmark goals to meet along the way to make it manageable.
At Veloce Capital, we sit down with our clients and create specialized investment plans that meet their individual needs. When they start investing, they have a solid plan of action that not only helps them meet their goals, but helps them navigate the “what ifs” and unexpected occurrences life may present.
More Best Practices for Investing in Real Estate from Veloce Capital
When it comes to real estate investing, one of the major keys of success is knowledge.
Market conditions, your vision and goals, and your comfort level for investment and risk are all important points for investors to consider. There is no substitute for being prepared and having the right knowledge going in.
It’s also important to never stop learning, evaluating, and preparing for the next steps. Those who fail or stall out are the ones who didn’t continue taking the time to be wise about their investments and their goals.
Finally, building relationships is part of the game with real estate investing. At Veloce Capital, we highly value our strong relationships with our clients, other investors, contractors, property managers, and real estate professionals. We only deal with the best in the business so we can set our clients up for long-term investing success.
Are you looking to get started in asset-based real estate investment or want to learn more?
Connect with our investor relations specialist today to learn more about how we can help you find the best investments to grow your wealth.
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