In this article, I will share ten important fundamentals of real estate that everyone should know if they want to make money here. These are the basics of real estate investing. If you understand them well enough, you will never get misled in the future and never face a huge loss in your investing journey.
These fundamentals of real estate investing will save you if you follow them step by step. Successful real estate investors use these methods to hold their success for a long time. You can do the same.
The Fundamentals of Real Estate Investing
Before you gain an idea of the fundamentals of real estate investing, first, you must know what type of investor you are because it all breaks down to the mindset. If your mindset is not on the right path, you will make many mistakes, and the road toward success will become harder and harder. That is why you must know yourself and what kind of investor you are.
Table of Contents
1. What Kind of Investor Are You?
There are normally four types of investors in real estate investing. Those are as follows.
An Observer
An observer loves the idea of real estate investing. But they are just an observer who observes everything but buys nothing. They will never invest money, just talk all the time.
Speculator
Speculators are super excited and driven by emotions. They think a property always appreciates (goes up in value). I will invest and sit on my chair, and after a few years, I will become a millionaire. But the reality is very different. They don’t know that.
Collector
A Collector loves the ownership a property offers, and he buys anything. The collector collects every property he has found to make himself proud that I am the proud Owner of the house.
Ultimate Investor
A true ultimate investor does the magic. He is not driven by emotion or pride but by facts and the market condition. He loves the opportunity as everybody does, but only at the right time, a time that will give him a sure profit.
Ask yourself what kind of investor you are, and then proceed to the next one.
Read, also: Real estate investing vs stock market investing
2. Why Do You Want to Invest in Real Estate
Tell me why you want to invest in real estate. There are many other options to choose from like stock market investing and:
- Mutual funds
- Bonds
- Gold
- Silver
- Cryptocurrency
- Startups
- Commodities
But you are interested in investing in properties. Can you tell me why?
I will tell you. It is the ablest Investment on earth. You can touch it, feel it, and do whatever you want. It gives you total control over your investments, which most other investors do not have.
3. Advantages of Real Estate Investing
There are many advantages of real estate investing, but here I will share the top ten that most people talk about.
- No need for a degree to start a business here.
- Anyone can invest.
- It appreciates every year.
- It has many advantages like Depreciation, Amortization, and 1031 tax exchange for reducing property taxes.
- You can leverage other people’s money to invest here.
- You can rent your property for cash flow.
- The fix and flip options are available.
- Options for House Hacking. You live there and move to a different place by selling it.
- The real estate sector is much more stable than other investments.
- It is one of the largest contributors to the GDP in a country.
As you can see, these advantages are enough to attract any investment in real estate. Now let’s understand the disadvantages of real estate.
4. Disadvantages of Real Estate Investing
Here are the disadvantages that you must know and not forget while investing.
- It takes a lot of money to buy a small house. If the value of a house is $100,000, the down payment you need to pay is $20,000 (20% of the total value). You have to arrange for that money yourself.
- Real estate does not have any liquidity. You can not sell it in a few minutes, like stocks. It takes weeks to buy and sell a house.
- Maintenance expenses are also there that you need to bear if you buy a multifamily building. You have to handle it all.
If these disadvantages are pushing you back, then real estate is not for you. Choose other investments.
5. How to Choose a Great Real Estate Location
In real estate, the location is everything, but what makes the property location everything? The market condition. If the market is not good, the location is not good.
- Everything depends on the current market condition.
If the market goes up, demand will be high, or it will be low. If people are moving to that place to live, work or do business, that is a great market.
- Remember, a location is just a piece of land. The market makes it valuable.
Select a location that is not far from your home or office. It should be within a range of 100 miles. Otherwise, that property can cause damage to you. If you are an expert investor, then you go beyond that, but at the beginning, 100 miles is a thumb rule.
6. Choose The Best Property Type
Now choose what exactly you like that will suit you as an investor. For example:
- Class A Property: 10 years old
- Class B: 10- 20 years old
- Class C: 20 -30 years old
- Class D: 30+ years old
Choose class C as a beginner because it offers the most opportunity. But you are free to choose others.
7. Check the Current Market Economy
Before you even look at the local market, you should focus on the economy of that area. Is it growing or contracting?
- A bad economy is a bad market, and a bad property market is a bad property location.
The economy comes first, then the market, and then the location. Now verify your investment terms, or you can call it the due diligence process.
8. Do the Due Diligence Properly
You must have heard this famous quote by Benjamin Franklin.
- Due Diligence is the mother of all good luck.
In this process, you will run some analyses on the property to find out if its a suitable investment or not, which are as follows:
- Physical review of the whole property
- A good legal review
- Overall title review
- Net operating income review
- Total income and expense review
- Property tax review
Never invest a single penny in a property before you analyze all these. That way, you will keep yourself safe from any possible scams.
9. Build Your Own Real Estate Network
Do you know how important a network is in the real estate business? They are not just people who take money from you. They help you become successful. A real estate business will never become successful if it does not have the required talent in its team.
Here are ten people every real estate investor needs.
- Property Broker: Find a broker who is a friend, not someone who just wants your money
- Real Estate Attorney: A real estate attorney who only deals in property knows all real estate laws.
- Mortgage Broker: Helps you to get the best loan.
- An Accountant: Helps reduce your expenses and property taxes.
- Home Inspector: Helps you find what needs to fix and how much money it will take.
- Escrow Officer: He helps you to close the deal faster without any dispute
- Insurance Agent: Protects your property.
- Professional Surveyor: Hire if you are developing something.
- General Contractor: Helps you to renovate the house.
- Architect: Designs your house wonderfully.
Go and hire these ten people. The top five are the most important ones. Choose them wisely.
10. Collect the Finance and Start Investing
Collecting money to buy a house is not hard if you answer these questions that every leader will ask you. Because they want to know when they will get back their money with profit.
- Why Should I buy this property?
- What is the risk level here?
- What is your exit strategy?
Answer them with a convincing tone and with proper data. They will agree to invest with you.
What are the Basics of Real Estate?
Follow these ten points step by step. These are the fundamentals of real estate investment.
- Know what type of investor you are from the inside
- Why do you want to invest in the real estate world
- Advantages of real estate investment
- Disadvantages of real estate investment
- How to choose a great real estate location
- Choose the best property type
- Check the economic factors
- Do the due diligence
- Build your own real estate network
- Ready for finance and start investing
So you have your list of the fundamentals of real estate investment. Now practice them and start investing in your local area. Good luck, see you soon.
