5 Principles To Follow When Buying Great Properties
Posted by Vamsee Lella // November 23, 2017
To be successful in real estate you have to follow a set of principles that will ensure you stay profitable. Without strong guiding principles, you’ll end up wasting a lot of time on properties that aren’t bringing in the money and can even be a drain on profits as well as your energy. Before making a deal on any new property, you must know if it fits your criteria. Without buying and management principles, you’ll have no standards for what these criteria are. This means a bit more work but if done right it will ensure you stay focused on your business and reach your financial goals. Keep these five guiding principles in mind when buying new properties.
- Only Buy Properties That Create Value. The goal in real estate is to buy low and sell high. This seems pretty obvious but it’s surprising how many first-time investors lose sight of this. No matter how attached to a property you might be, if it can’t create value it’s effectively worthless. The value of a property will be determined by a number of factors such as the housing market, the state of the property, location along with supply and demand. It’s easy to get hooked on just one of these factors and lose sight of the others. A property may be in a great location with good demand but if it’s in poor condition it won’t be worth anything until you can make improvements. Sellers who have run into problems like this can lead to you picking up a property at a bargain but always ask yourself first, how you intend to create value.
- Keep Emotion Out Of It. Success in real estate investment often comes from keeping emotion out of the equation. If you can’t keep a lid on your emotional attachment to some properties, you can end up fighting over a property for more than it’s even worth. Remember that in real estate you’re not just investing your time and money but also your energy. Invest too much of it and you can find it very hard to walk away from a deal that’s gone sour. If you become too attached to a property, you can end up paying more than it’s worth or allowing it to take up all your time. Sometimes it’s best to drop properties that you feel you’re becoming too emotionally invested in.
- Know The Numbers. Knowing which properties to drop is about knowing and trusting the numbers. The market numbers have the final say in whether a property is a good investment or not. This also means making sure that the numbers are realistic. If you’re becoming too attached to a property you can try fudging the numbers to make it look more appealing but eventually, you have to face facts. Real estate investment is about acquiring the right properties, not just any property. If you know the numbers, you can better invest and know which properties are worth pursuing. This requires doing your own research as well. Never take a seller or agent entirely on their word. If the numbers don’t add up or too much work must be done on a property, then walk away while you still can.
- Expect The Unexpected. “No battle plan survives the first contact with the enemy” – the same applies to business management. However carefully you research and plan for something there will always be unexpected difficulties that you run into. Although you can’t ever know what these difficulties will be, you can still put reserves in place to meet them. This means both financial and mental reserves. Without sufficient reserves in place, you could be staking all your success on a single deal. A great investment now could be suddenly ruined by unseasonal flooding; good tenants today can suddenly stop paying rent tomorrow. Keep yourself mentally and financially prepared, to face any unexpected difficulties you might encounter.
- Have The Right People In Place. Even if you think of yourself as a ’Solopreneur’, you will still rely on other people along the way. Success in real estate calls for a team effort, you need to surround yourself with the right people from financial advisors, to local agents to contractors. Your success will be determined by how well you work with each person in the process. Disagreements with building contractors can slow down an entire deal, not having a trustworthy local agent to consult can lead to poor decisions. By having the right people to consult and building good relationships with them, your business can move much more smoothly and any difficulties can be overcome.
Having clear guiding principles will help keep you on track. A bad deal can take months or even years to recover from. Follow these principles and you won’t go wrong with your investments or property management.