Real Estate Speculation: Don't Fall Into This Trap

When we become overwhelmed by uncertainty there are often two extreme behaviors which ensue:

1. at one end of the spectrum we have complete inaction
2. at the other end, is rash action without really knowing what we are doing, which we often call "jumping in"; or in the investing world, speculation.

In my previous post about risk reduction techniques we looked at various ideas to help reduce the risks that might be preventing you from taking action and doing your first deal. Following on from that, I thought we should address the other extreme since we want to find a happy median that allows measured but confident action.

While taking a leap of faith in some ways is admirable and often gets the desired result of creating momentum it can also mean financial suicide. One of my favorite sayings is "you cannot steer a parked car" so I would probably prefer to see people taking action rather than doing nothing but let's take a look at the differences between smart investing and just plain speculating.

The following are things you should do to ensure you don't find yourself in the dangerous territory of real estate speculation when making an effort to get started.

1. Deal Analysis

First and foremost is deal analysis. If a deal stacks up on paper then that's just about all you need to know. You really aren't speculating if you have done a thorough and accurate analysis that shows you what profits to expect and when. As I've mentioned before, the key to successful real estate investing is knowing your profit BEFORE you do the deal. So, if you haven't already, go and check out my post on how to evaluate a real estate deal.

2. Don't get caught up in the hype and excitement

We saw the hype before the markets crashed and to some extent we are seeing it again. Now the hype itself is not a bad thing because it gives us information about what is likely to happen. The problem is when it results in pure speculation that ends badly.

It's worth noting that such speculation can and does work out very well for some people who get very lucky with their timing. There were those who bought and sold before the credit crisis and made a handsome profit and there are people who a speculating now by snapping up foreclosure bargains. Some will falter and some will do very well. The key is to realize when your greed gland has been activated, not get swept up in the excitement, and invest wisely rather than just following the crowd.

I believe now IS a fantastic time to be buying real estate in the US but you should not just go and leap in without doing an evaluation of each deal. Let the hype guide you but do not get swept up in it and speculate blindly.

3. Don't bank on appreciation

You can invest for appreciation but do not BANK on appreciation when starting out. In other words it can be factored in as a potential upside but you should never put something that requires a crystal ball into your deal analysis - how can you? So the deal should stand up on cash flow analysis and any appreciation that you forecast should purely be a nice upside.

I will not get into the cash flow versus appreciation debate here (maybe another time) but when getting started your investments should not be costing you money every month unless you have deep pockets and are prepared to lose money. ie. unless you are choosing to speculate.

4. Don't try to time the market perfectly

Some macro analysis will provide you with valuable information about whether you should be getting ready to buy or sell. Such information will certainly improve your odds of success but don't get too clever and imagine that you need to time it perfectly. Remember: anything requiring a crystal ball falls into the category of speculating rather than investing.

I hear very confused individuals wondering if now really is a good time invest because many people are saying that prices will continue to drop for some time. So? It's a time to buy, not a time to sell. Maybe they are confused because their notion of investing doesn't include anything other than flipping - I don't know. But that brings us to the next point.

5. Choose your strategy wisely

Real estate investing is not a one-size-fits-all affair. Unless you have a clear strategy in mind, you are speculating and not investing. And unless you choose a strategy that suits market conditions and suits your strengths and weaknesses you are also taking undue risks.

There are more options available to you than just flipping, so get an idea of what strategies you have available to you and then think about which ones suit you and suit the market you are operating in. Check out my 5 Step Plan for Getting Started for more information.

6. Don't treat the markets as one big market

Real estate markets have quite different dynamics from region to region and one problem with listening to the hype and the news is that they are often referred to as "the real estate market". For the sake of simplicity, averages are often used to report trends but a smart investor knows that investing based on averages is quite dangerous.

Realize how different real estate markets are from city to city and even within different areas of a city. And then choose a market accordingly. That is smart investing rather than speculative approach of basing your decisions on averages.

Summary

You don't need to get everything perfect so don't let any new information here paralyze you. But you MUST get the deal evaluation right. So if there's one thing to focus on here, it's that.

In terms of how to ensure you take action without undue risk I'd suggest the following. Put a bit of a plan together based on the points above, the getting started plan and the risk reduction methods, then start looking at appropriate properties in your market that suit your strategy. Most importantly, do a financial analysis of each property you are considering and when you find one that stacks up on paper go for it. When you've taken the preliminary steps mentioned you will have covered your bases sufficiently.

Yes, there will still be things ahead that you will need to figure out as you go along but with your contingency planning and other risk management in place you will be well equipped to handle it. So this leap of faith at the end is just a matter of overcoming that final hesitation.

This article has been republished from InvestingSecrets.Com. Written by Scott Roemermann.

Do Real Estate Gurus Really Want You to Succeed?

Do real estate gurus really want you to succeed may sound like a very peculiar question but let’s look at the logic behind this question. As a perspective real estate investor you are constantly bombarded with very different ideas from real estate gurus. Some have years of experience, but many more have just a couple of years experience and have only operated in a frenzied environment.

I remember a guru selling a program that was touted as going further than any other program in the industry. The difference was his specific strategy of having various vendors paying for the advertising and actually making money on the home sale even if the property wasn’t sold. I admit it sounds good and it may have worked in a white-hot seller’s market, but it had no chance of working in the flat markets we have had for the past few years.

The guru still kept pounding on the success of his program – which may have occurred five years ago. After the presentation, one person who bought the course because he was having a sale in a few weekends asked what I thought. I said that the idea was old and the new wrinkle on “selling vendors” to participate was a twist but I didn’t think it would work in this market.

Three weeks later the student called me after his open house event and explained that he could not get any vendors to participate and not a single vendor who would pay to advertise. So he paid for the advertising himself and it was a total bust with only three people coming for the full two days.

I suggested he try the round-robin auction method we have used for 15+ years. He did just that two weekends later and had 53 people visit and sold the property the following week. I can guarantee that if you simply put a sign in the yard (FSBO or Realtor’s), run the usual newspaper ads, put it on Craigslist, etc. you are hoping for a lightning strike called a qualified and motivated buyer. Using a systemized marketing program that also accumulates a hungry buyers list is much more effective.

The enormous value of this investor finally selling his property was not just getting rid of it after being on the market for 7 months, rather it was the buyers list he developed. Maybe 95+% were neighbors and investors, but the others were real perspective buyers and a few of them actually had loan approvals.

The investor called the guru marketing the course and complained about the result of what had happened using the instructions from his course, and the guru offered the explanation that, “It’s a bad market”. He did offer to personally do the sale for the investor for a nominal fee of $3,000 saying that it was a small price to pay to get his property sold and how many leads he would get!

If you have been to a national training or “boot camp” you will agree that you are often besieged by additional speakers with different specialties, all with the intent of selling you additional courses. It’s not impossible to spend $20,000 – $30,000 at a single event and in some cases $50,000+. With all this money trading hands, why would the gurus want to see you fail? Frankly, if you succeed in doing deals, you will take more of their time than if you do nothing. They already have your money – it is purely economics and good business in their minds.

Just buying courses over an over again only gets you closer to broke, not closer to doing deals. Doing deals takes the courage to get started and to not be afraid of what happens. Gurus know that having you rush to the back of the room now makes money for them but not just from this initial purchase. Once you are in the system, you will now need more and more information and finally a personal mentoring course to really get you started.

This article has been republished from Stock Markets Review.

Tips For Successful Real Estate Investing

When it comes to investing your money Real Estate investing is always a sound one, even in a tough market. There are two reasons for this, first of all, there is a limit to the amount of available Real Estate there is and secondly Real Estate will eventually appreciate in value, you just have to be patient.

With a cold housing market and hundreds of thousands of homes in foreclosure, you can make the most of your investments and get more bang for your buck in the Real Estate market. Before you go jumping in, however, here are some tips to get you started.

#1 – Don’t bite off more than you can chew. If you aren’t a do it yourselfer and you don’t have the money to invest in a fixer upper, then don’t buy one. Spend a little more on a house that is move in ready instead.

#2 – Do add upgrades. There is a reason that rental homes are advertised with carports, dishwashers and garbage disposals. It is because tenants find them valuable. If your investment properties don’t have them, add them, they will pay for themselves with the increased rental rate you can charge.

#3 – Don’t buy for yourself, buy for your tenant. Just because you love the color scheme orange and black doesn’t mean that you should buy it. Think about the people who are going to live there so that you can get the most money for the property.

#4 – Do charge the right price. If you want to grab a prospects attention, offer an introductory rent but don’t low ball the property. You can compare rental rates for comparable houses or properties in the area to make sure that you are charging enough.

#5 – Don’t hire a professional when you can do it yourself. This applies to upgrades, repairs or even selling the property if you don’t want to rent it. However, refer to rule #1 before jumping all in on a project.
#6 – Do educate yourself on real estate investing. Many people think that it is very easy to do, but the truth is that those who have had the most success in this type of investing took the time to learn every aspect of it so that they could maximize their profits, you should too.

Find out more about Real Estate Investing at http://citiscaperealestate.com/

This article has been republished from Stock Markets Review.