This blog is primarily for new real estate investors but the seasoned investors can also have a read if they feel that they are neglecting out on one or two basics of real estate investment.
So without further ado, here are the 10 basic rules for a successful real estate investment.
Having more knowledge is always an advantage. The more knowledge you have, the better decisions you’ll make in life generally. So this applies to real estate investing as well.
Instead of letting others tell you what to do due to your lack of knowledge, you should first do your own research and then you can ask for the opinions of others.
When we talk of knowledge in terms of real estate investment, being financially literate is very important. For those who don’t know what ‘Financial Literacy’ is, it is the possession of knowledge and skills required to manage your financial resources effectively. In short, you should know how to use your money wisely.
Set Realistic Investment Goals
Setting goals helps to achieve our targets because we know what we are aiming for. However, your goal should be realistic and practical enough to be achieved in the long-term.
For instance, If you’ve bought ‘XYZ’ property, make a realistic assumption of its appreciation in 5-10 years time. And suppose you’ve have bought ‘X’ number of properties, there should be a realistic target in your head of their total return in the long term.
Look For Long-Term Investments
Do not look out for short-term gains because, in a volatile market, it can be work against you. The experienced investor is most times looking at real estate in the long-term.
Consider the appreciation potential of any property in view of the long-term perspective.
Invest in Properties with a Positive CashFlow
Cash flow means the money flowing in and out of your business. You must always look for properties that ensure positive cash flow or a positive rate of return.
How to ascertain a positive rate of return? It can be ascertained by considering the equity on your property, which will grow over time because of the appreciation of property values backed by inflation.
Choose The Most Profitable Location
If you’re living in Karachi and are attached to the city emotionally, it doesn’t mean you must only invest in Karachi’s real estate. The basic rule should be to consider the most profitable location even if it is not the city you live in.
Organized Approach For Your Real Estate Research
You should start your research from a wider scope and then narrow it down specifics as you go along. Determine which city would be the best in your future for investment based on the current situation.
So if you’ve selected Islamabad, study all the popular housing societies located in the city, and choose the best one according to your situation and finances.
Diversify Your Real Estate Investments
Diversification in regards to real estate investment means investing in properties on different locations. For instance, if Islamabad’s market is doing well, you’ve made a few investments there. Then you can invest in buying a few other properties in some other city like Karachi or Lahore.
So this will ensure that if Islamabad’s property market goes downwards, you can get good returns from other the investments you made in Lahore/Karachi.
Moreover, you can diversify in terms of the types of properties meaning you can invest in residential properties in one city and on commercial properties in a different city.
The objective of diversification is to reduce the risk involved in making investments. And the above practices will ensure exactly that.
Manage Your Own Investments
One thing you should always keep in mind is investing in a property directly. Do not look towards the ownership of a property through shares, funds or partnerships.
Make sure to be actively involved in making your real estate investments.
Invest Your Money Smartly
You have two options. Option ‘A’ is to buy a single property of PKR1 Crore. Option ‘B’ is to put a 20% down payment on five properties of the same value; in this way, you’re the partial owner of five properties.
Which option would you choose and why?
Option ‘B’ is more profitable as you can rent out the properties which can be used to pay off the remaining amount in installments.
So over time, you will be the owner of five properties with a total worth of PKR 5 Crore. Remember you started with only PKR 1 Crore. This is called ‘investing your money smartly’.
Consider Outsourcing Property Management
If you’re the owner of many rental properties and find very less time to look into buying other properties, what you can do is hire somebody to manage your properties while you spend your precious time in further expanding your real estate investment portfolio.
Plus, it’s not easy to find a good tenant who would cause no troubles to you and pay you the rent in time without any delays. So it will be more convenient for you to leave this job to a professional property manager.