Investing in real estate can be really tempting however, since it involves big amounts of money it can also be dangerous. Unlike gold where you can just google today’s gold rate in Jamshedpur and invest low amounts of cash in digital gold, with real estate even the minimum amounts is a lot:
- Don’t forget illiquidity
You can get caught with your pants down if you have to sell quickly. Real estate is not like stock or bond investments that are generally liquid. Real Estate transactions require time for financing (if applicable), inspections, negotiations, closing and funding. While you may be able to sell a stock position within seconds to minutes, similar transactions involving real estate could take months or longer depending on what needs to happen to finance or close on the property. If you need quick cash from an investment consider other options
- Don’t play the short game be a long-term investor.
One of the best ways to reduce risk is to invest for the long haul. For example, if you can avoid the need to sell during a down cycle, you have a much higher likelihood of weathering any short-term storm. Those that do not have the luxury of an extended time horizon will require the services of a professional property manager to maximize their investment rewards and minimize their risks.
- Don’t focus on just one kind of asset
Avoiding diversification can be detrimental in any kind of investment class hence diversifying your real estate holdings. Even if you do not want to own properties in multiple states or regions, you can still diversify your holdings within one community by purchasing different types of properties. This not only gives you access to more renters but also allows you to mitigate your risk if one sector of the market takes a downturn (such as apartment rentals during an economic recession).
- Don’t be hesitant to invest in difficult to get in areas.
Invest in locations with high barriers to entry. Buying where others cannot invest can help protect your investment from the competition. This may include buying in areas that are unattainable for most investors such as in affluent neighbourhoods or along desirable bodies of water. You can also achieve this by investing in properties that are unique and therefore have no comparable alternatives (such as a lake house on private acreage).
- Don’t set arbitrary goals for yourself
“I want to own 100 rental units by the time I’m 30 or acquire this much cash in real estate” are very common goals among new investors. While setting goals is important in life, setting arbitrary real estate investing goals can be dangerous. Make sure not just to set goals that you think sound good or look cool on paper — set realistic goals that make sense given your knowledge and resources! This is a lot like gold where you need to study the market look up today gold rate in Andhra Pradesh or whichever state you are from and understand the market before you can invest and build expectations. See more.
- Don’t undervalue location or market conditions
Many people think real estate investing is about finding the right property or deal alone – but that’s simply not true. Where you invest matters just as much as what you’re investing in, as does the state of the local market and economy. Location-specific factors include safety, schools, amenities and services available in the area, among others; these are all important to consider when buying a buy-and-hold property because they can affect its value over time. Market conditions include vacancies and rental rates in comparable properties in the area; again, they can affect how much (and how easily) you charge for rent on your property.