Real Estate Blog

In this post, we will be expanding on our previous post in this series: common mistakes of first-time and beginning property investors. In the previous post, we discussed the idea of treating property investments like any other type of business venture and employing some general best businesses practices. We covered everything from the availability of cash reserves to rental potential, and the importance of knowledge of the market.

A major component of knowing the investment market is understanding how location relates to property value. We previously touched on rental potential and foresight. Often, new investors find deals and think they are paying a good price based on square footage, bedroom and bath count, etc. without having a good understanding of how the location affects property values. While property investing is somewhat similar to stock market trading, real estate has a stronger link between market knowledge and risk. With stocks, more knowledge doesn’t always limit risks in a linear fashion; with property investment, it does. This is another case where the knowledge and guidance of experienced investors can be vital.

People get emotionally attached to material property. We are proud of what’s ours and what it represents. This is a potential hindrance in property investment. When investors are able to keep their emotional reactions separate, they are able to close on a good deal even though they can’t picture living there, and they can pass on a property that is charming when the numbers don’t work out.

There are generally two broad varieties of investment strategies: “Buy and Hold” and house flipping. Many new investors are interested in house flipping because they see it as a means to make money fast based on rapid appreciation of property values in specific markets. Buying real estate with the intention to flip based on the possibility of rapid appreciation is riskier; however, investors who know what to look for and how to time their moves can be very successful in the house flipping model.

Other investors buy real estate with the intention of holding it for multiple years, thus the “Buy and Hold” model. While this form of investment carries less short-term risk, it requires even greater foresight, and just as much understanding of market trends and cycles. Here in Austin, the “Buy and Hold” method is very promising given the economic landscape, but for those of you reading in other parts of the country, be sure to do an accurate assessment of your areas potential.

Lowering risk is achieved by better understanding of the market, as well as knowledge of effective investment practices and methods of financing and negotiation. With these common missteps in mind, one of the best ways avoid pitfalls, and also to gain understanding and experience with vital principles of property investment, is to work with a real estate investment/property management team that can help any investor to expand their portfolio and ultimately find success.