I’ve just created these rules to make successful investments after many years of trial and error. These are the same rules I follow and share with our clients at Cat Real Estate.
These are the rules to be sucessful in real estate investment
- Educate yourself
Knowledge is the new currency. Without it you will need to follow other peoples advice without knowing if they are good or bad. This knowledge will also help you get from good to excellent investments. It will also provide you of big passive revenues both for you and your family.
- Establish investment goals
A goal is different from a wish. Maybe you wish to be a millionaire but that does not mean that you are taking steps to making your dream into a reality.
Establishing specific investment goals will help you create an investment map and an action plan for you to be financially independent. You are more likely to get there if you right your goals in a specific and detailed way than if you don’t.
- Never speculate
Always invest with a long-term investment perspective. Don’t speculate taking into account fast short-term revenues, not even when you are in front of a tight market experiencing two digit earnings.
You never know when a market might reach its highest point, because you usually realize 6 or 9 months after that has happened.
Don’t go after appreciation; invest only in prudent values where the numbers make sense form the beginning.
- Invest to obtain a good cash flow
With some exceptions you always need to buy properties that will give you positive cash flows, the higher the better. Your cash return is directly related with cash flow after taxes.
Cash flow is the glue that keeps your investments in place. Your wealth will grow as times goes by (with appreciation value and loan amortization) if the cash flow covers operations costs and your property debts.
- Be agnostic with the market
This is a basic rule to be successful with your real estate investments. Don’t trust the market. Real estate market is volatile and it is assembled of many different labor markets. Each market moves at its own pace and in an independent way according to the factors that affect it.
That is why a flat in Barcelona or Madrid is not the same as a flat in Almeria. Each market is particular and has it’s own returns. This is the reasoning behind why sometimes it might be good to invest in a certain market and not in others.
Only invest in markets when it is good enough, not do to other reasons such as you live there or you have already owned a property there.
- Take the best approximation
First start by selecting those markets that meet your investment goals. Most people just start by analyzing the property without having taken into consideration the market its in. Not considering that your property can align to the market or the neighborhood where it is established can be a big mistake.
The best procedure is to first pick a city or a village based on the state of real estate market and the local economy.
Then you begin to narrow it down toward the best neighborhoods. Finally you look for the best offers with in the zone you have narrowed down.
- Diversify in the markets
Focus in one market at a time getting 3 to 5 profitable properties in each of them. Once you own this type of portfolio you can diversify to another market geographically different to the first one. This usually means focusing on another province or regional area.
One of the reasons why you should diversify is to have assets in different economical areas. Each real estate market is local and therefore moves in a different way from others.
Diversifying in different regional areas helps reduce risk in case of a market decline for whatever reason.
- Use a professional to manage your properties
Do not manage you own properties unless you have your own property managing business. Because this job requires a great understanding of laws that apply to landlord-tenant relationship, negotiation skills and social skills to manage the complaints and excuses of the tenants.
Your time is much more valuable and you should use it to focus on your family, your career and to find more properties.
Hire a good property manager; in Cat Real Estate we have our very own personalized service in real estate administration. Contact us and we will inform you.
- Keep control
Be a direct investor in real estate. Do not but property through funds, companies or other type of investments based on paper and where you are not in control. You will always want to be in control over these things, do not leave it in the hands of corporations or funds managers.
- Leverage your capital investment
Real estate is the only investment where you can borrow other people’s money to buy and control a property that produces income. This allows you to leverage your investment instead of investing all your cash. Leverage magnifies your overall rate of return and accelerates the creation of wealth.
As long as you have positive cash flow and your tenants are paying off your mortgage, it would be a mistake not to burrow as much as possible so you can buy more income-producing properties.
These rules to invest successfully in real estate are a compilation of many years of work and facing a volatile market with prosperity periods and strong crisis, as we are all aware of. If you want to comment, use the comments part of the post or you can send me an email. I will be happy to welcome you.
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