Why should entrepreneurs invest in the first place? The answer is: to have enough money to live on when we no longer can or wish to work. To put that money aside, however, we have to accumulate enough to offset inflation and the taxes that erode our savings. And for that purpose, real estate is an excellent solution.<\/p>\n\n\n\n
The great thing about real estate is that even in a bad economy, it will usually fare better than stocks. Land, after all, is a finite resource. People need a place to live, work, shop and play \u2014 so real estate is really just a matter of supply and demand. <\/p>\n\n\n\n
What’s more, real estate will continue to appreciate despite occasional slow-downs in the economy. In fact, it’s proven to be the best way to create wealth, and an investor need not be a genius or a millionaire to succeed. Here are some tips, then, for entrepreneurs on getting started and succeeding in real estate investing:<\/p>\n\n\n\n
Before you buy that first property, or do your first analysis, determine what you expect from your investments. What are your financial goals? We often discuss the \u201ctime vs. money\u201d concept: The more you have of one, the less you need of the other to reach your financial goals. This means that you shouldn\u2019t shy away from taking the time to understand your goals and make sure each investment is a step toward achieving them. If you are unsure exactly how to create financial goals, meeting with a financial advisor is an excellent first step. <\/p>\n\n\n\n
You absolutely do need to learn some basics before venturing into investing.\u00a0So, be sure\u00a0to do some studying, but don\u2019t let \u201cbuying and collecting\u201d information become your endgame.\u00a0Again, having goals in mind will make the process much more straightforward. It\u2019s easy to get so\u00a0tied up in the \u201cresearch\u201d phase that you never actually take action. Instead, write down\u00a0specific questions you want answered or goals you want to meet before delving into the latest\u00a0book\/seminar\/etc.\u00a0<\/p>\n\n\n\n
Don\u2019t just grab the first property you look at. Too many investors buy properties because they \u201clook nice,\u201d or the investors don\u2019t want to put the work in to look at what\u2019s really out there. Remember, you won\u2019t be living there, so don\u2019t make your investment decision based on your personal preferences. While you shouldn\u2019t fall into the trap of analysis paralysis, make sure you are thorough in looking through properties. Give yourself a wide range of options, then narrow them down based on the criteria (goals) you have set for yourself.<\/p>\n\n\n\n
That\u2019s the flip side to number 3, of course. Plenty of beginning investors suffer from \u201ca-better-deal-may-be-just-around-the-corner\u201d syndrome. This can backfire in a big way, and you could potentially let a great deal slip just because you\u2019re holding out for something better. Your task may feel difficult if this is your first property, but you must realize that the \u201cperfect deal\u201d rarely (if ever) exists. Better to execute on a deal that meets most of your criteria than wait for another that may never come. <\/p>\n\n\n\n
Be realistic. Look at different alternatives to determine which makes the most financial sense. And never buy property at a higher price or on less attractive terms than your analysis says made sense. Be wary of sellers that try to over-estimate the value of the property through pro-forma (estimated) data. While you can certainly use a pro-forma to start the conversation, make sure you know the real numbers before closing. Look at previous years\u2019 tax returns, property-tax bills, maintenance records, etc. to get a good idea of the real income and expenses.<\/p>\n\n\n\n
The most important figures you should know are: <\/p>\n\n\n\n
In each case, \u201cinvestment\u201d refers to how much you invest in the property. “Debt financing” refers to any loans you may have to take out to buy the property. And “total return” refers to cash flow, equity accrual (i.e., equity gained from your tenants paying their rents), appreciation and taxes.<\/p>\n\n\n\n
Once you have understood these figures, you should have enough information to determine whether or not acquiring the property fits with your financial goals.<\/p>\n\n\n\n
If the seller is motivated to sell, you\u2019re not likely to get the price best aligned with your financial goals. So, how do you know if a seller is motivated? Look at the asking price. For example, If the property has been on the market for a year for, say, $200,000, with little-to-no price reduction, the seller is clearly not very motivated to move the property. However, if that same property has been on the market for a year and has had its price moved down considerably, the seller most likely wants to do whatever it takes to get the property off his or her hands. Of course, this raises the question of how to find motivated sellers. There are many approaches, and not all of these will work for you, depending on what property you want. But a few trusted methods include: <\/p>\n\n\n\n
These are just a few ways to find sellers, but there are potentially dozens of other methods, depending on what type of property you\u2019re looking for.<\/p>\n\n\n\n
As an entrepreneur, you already have a business, and real estate investing is best used to support that business, not replace it \u2014 unless that\u2019s your intention. In other words, don\u2019t get so caught up in executing transactions that your core business falters. If that happens, you\u2019ll be facing a bumpy road to get back to stability. Unless your business is itself real estate, or you\u2019re looking to get into the business full-time, always remember that pursuing these deals is a means to an end, not an end unto itself. <\/p>\n\n\n\n
So, if you\u2019re interested in staying ahead of taxes and inflation while building security for the future, real estate investing may be for you. What are you waiting for?<\/p>\n","protected":false},"excerpt":{"rendered":"
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