Almost every investor has considered putting money into real estate at some point in time. It is an attractive investment because it is easily leveraged through mortgages to maximize the potential returns, tends to consistently appreciate more than stocks, and has predictable cash flows.
However, investing in real estate is not that simple. According to Scott Roemermann, a seasoned real estate investor, “Only 5% of people do something when they attend in investing courses. 95% will never offer a deal for a property.”
It is also time-consuming. This is one of the real estate investing secrets – If you want success, you’ve got to have the interest and time to keep the properties on track and find the good ones.
Speculating versus Investing
Don’t believe that the value of properties always goes up. In Japan alone, property prices fell by 75% throughout the last decade. Expecting a price raise can be considered as pure speculation. What you need to do is make sure that the investment makes sense from the perspective of a positive-cash-flow. And even if the property has fallen in value, your cash flows should still be “right side up.” Any appreciation should only be considered as icing on your cake.
Among the real estate investing secrets is this: Buying a piece of land and just hoping that the value will go up is called “speculating,” while buying a well-researched property with the purpose of collecting income through selling or rent is a form of “investing.”
When and Where to Buy
Of course, real estate agents and sellers want you to buy their property. So most probably they’re only telling you about the rosy scenario and not the actual one. So ask for a “Schedule E form” from the seller’s taxes (if the property has been rented previously). It will show you his actual expenses and revenue (or at least the amount he reports). Expect to earn somewhere between his income promise and his report to the IRS.
You’ve probably heard about the belief that the 3 most important factors are “Location, Location, and Location.” But to a real estate expert like John Reed, he says “There’s actually more profit in locations which are less desirable.” He looks for a “double-digit cap rate” as what he calls it.
For example, you net a $1,000 rent every month on an investment equal to $100,000, then that would be $12,000 per year, or 12% of the investment. That’s already a good double-digit yearly return after expenses – another one of the real estate investing secrets of successful investors.