Over the years I’ve seen many changes in real estate investing. Currently, I’m seeing a subtle but oh so ever present transition in real estate investing. It involves a shift in the way folks think about their real estate investment, a movement towards being more dispassionate, a movement away from qualitative and being more focused on the quantitative. Folks historically look at property differently than they do other investments. They look at their rental properties with the same viewpoint that they look at their home, with some pride of possession.
You would not look on your technology stock with pride of possession, unless maybe it was Apple stock and you used to be a Macophile. But with real estate, there has a tendency to not only take pride in your properties, but to extend the stock analogy a buy-and-hold mind-set.
What I am both seeing and recommending is a shift away from that. For one thing, if you go into RE investing with that disposition, it will break your heart. You can not think about investment property with the same pride of possession that you have for your first residence. We are protecting of our main places. We try to be sure it is good and stays that way.
When renters leave a property, it is likely to be in less-than-pristine condition. Each time somebody departs, you’ve got to call in the painters and carpet layers. Real estate investment, like every other investment, is about either earning money or reducing your taxes so you have more disposable income.
Real estate investing needs an entrance plan, a holding methodology, and an exit system. It is essential to think about the numbers, because you are spend your time, your money, or both. For example, these are some questions property investors must ask themselves:
- Do you plan on managing the property, or will you pay a property manager to do it?
- Are you researching available properties yourself or working with a pro? If the previous, there are numerous opportunities at sites like Bigger Pockets and EconoHomes.
- Would you like to acquire real estate with very little money ( i.e, be highly leveraged ) or would you like to make a gigantic down-payment so as to keep more of the worth and boost your passive revenue?
- Would you like to invest in commercial or residential property?
- If you will be investing in residential properties, would you like to invest in troubled properties in depressed areas which will rise in value or white collar or upper-class properties that are much more likely to hold their price?
In the transition to being dispassionate, investors need to think about many other numbers both before the purchase and after:
- ROI. You want to consider the return on your investment. What is your payback? Are there better paths to invest your cash? Is it the right time in the real estate cycle to invest?
- GRM or Gross Rent Multiplier, which comes from comparing the yearly salary of the property to the property’s price. If the annual gross rent is $12,000 and the property cost $120,.000 then the GRM is 10. Generally, ten is a good measure.
- Capitalization Rate or Cap Rate. How much is it costing you to service your investment ( i.e, paint, carpet, mortgages and other costs? Your cap rate comes from a study of costs vs. earnings. Eventually, there’s the exit methodology. Remember, your identity shouldn’t be tied up in this investment.
Last but not least is the exit strategy. You need to just as dispassionate about selling as you are about purchasing. Are you going to sell completely, or do an exchange? You can also sell the house and carry the financing yourself to get the monthly money flow as a return on your investment.
Bottom line, successful real estate investing requires investing with your head, not your heart. And now I would like to invite you to claim your FREE Proven Real Estate Strategies Guide where I’ll share with you some of the little known strategies I use to generate dependable passive income based on over 25 years in the industry. Get started today!