How Dangerous Is It to Invest in Real Estate? So, what are your options here? So, what’s the real deal here? The real estate business isn’t as simple as the seminars make it seem. Therefore I don’t understand why there are so many of them.
Every time I turn on the radio, the late-night news, or the Saturday morning infomercial, there is a real estate program advertising easy ways to get rich quickly. I mean, what gives? Is there something I should be taking away from these lucrative workshops that I’m missing out on? The takeaway is this: if making money in real estate is so simple, why isn’t everyone doing it?
We seem to enjoy the business benefits, such as improved deal-making skills and the occasional discovery of exceptional offers. We aren’t learning a lot in many of these seminars, and we need to be aware of those gaps. That is not to argue that one cannot get wealthy through real estate investments or that one cannot make a good income doing so. Excellent methods exist for acquiring and nurturing productive assets at various stages. In addition, business success can bring personal fulfillment and independence. While the standard real estate lecture may provide helpful information, you can rest assured that there is more to the industry.
Successful companies typically follow established procedures and have refined their business models (methodologies). To guarantee that their goods and services are up to snuff, they have quality control measures covering accountability, direction, risk mitigation, safeguards, and assessment (assurance). Everyone has been on the receiving end of, “Oh, you’re in real estate. Isn’t that a little bit dangerous?” Of course, it can, and for many people, it usually is! Must there be such danger? No! However, have you ever attended a real estate seminar where the speakers talked about managing and assessing risks? If you insist, I guess. Isn’t that the case?
Rather than giving their listeners the whole picture, many so-called real estate experts tell them what they want to hear. The benefits and importance of sound real estate practices should be common knowledge. But shouldn’t we also cover asset management, industry best practices, checks and balances, and investment strategies when talking about the real estate business? Do you need help with property management, for instance? Do you not want to learn more about how to handle difficult situations, how to avoid making terrible choices, how to grow your business, and how to keep yourself safe? Everyone experiences the ups and downs of business. However, not every company succumbs to the recession. Most companies I am familiar with deal with risk management formally or informally.
My Suggestions We recommend focusing on these three (3) areas to advance your company. Although they apply to any industry, real estate is where they shine.
A. Your company’s long-term goals
A dream was expressed by Dr. Martin Luther King Jr. Similarly, to succeed in business, you must have a clear idea of where you want to go. Keep your vision sharp by writing it down.
B. A detailed, “cradle-to-grave” business plan
How can you make your idea a reality if you don’t have a plan for it? The goals and steps you intend to take to initiate and finish any significant project or program should be detailed in your plan.
Plan for Handling Uncertainty
You are responsible for taking only the measures necessary to ensure your success. Making course corrections before incurring financial penalties is preferable. Not placing all your eggs in one basket is a crucial tenet of risk management, as is periodically monitoring your progress, preparing for the worst-case situation, and adapting your strategy as needed.
A) Develop a Long-Term Strategy for Your Company. This is how you realize your vision:
Principles you hold dear as a business
The company’s raison d’être
Objectives that spell out the steps you’ll take to get your desired outcome.
Your company’s mission can be distilled from these three factors. After carefully considering these three factors, you should put your business’s mission and objectives on paper. A company’s long-term goals are not set in stone. Your goals will expand in scope as your company develops.
B) Layout of Your Company How do you first figure out what you want to do with your business? You can learn from teachers, books, and discussions with experienced people. It’s a good idea to jot down your answers to these six questions about your business setup to ensure you’ve covered everything.
What, when, where, why, and who
All six of these will help you in your preparations. You should outline the essential components of your business, such as Who will be engaged, What the firm will do, How it will get there When it begins (a timeline), and Where it will be located. A well-organized company plan is seen below. The level of sophistication and thoroughness with which you employ it relies on the age and size of your enterprise. Define your responsibilities in as much depth as is necessary for effective business management. However, the four Phases are universally recognized as distinct periods. Attending classes, conducting online searches for company models or business techniques, or revisiting our website (http://www.globalrealestateinvesting.com) are all excellent options for those interested in learning more.
Phase I: Analysis
Clarify Your Goals and Objectives
Determine your goals in light of your mission.
Determine what tools and personnel you’ll need to get the job done.
Find prime commercial property for your expanding company.
Models for managing risks should be defined.
Plan the following steps (including the marketing and staging strategy) on paper throughout the design phase.
Choose investment property by estimating its present and potential future value for either buying or selling.
Quantify the time, effort, money, and other inputs that will be needed.
Make a breakdown of the work and associated costs (a Work Breakdown Structure, or WBS).
Confirm your estimates of time and money with other essential players, and make adjustments as needed.
Plan your property’s development in manageable stages.
Set up benchmarks for performance evaluation, and compare your progress against the marketplace.
Third, the Building and Remodeling Stage Follows your blueprint when building, renovating, or managing a project.
Gather your team for quick, regular evaluations to see if you’re on the right track.
Modify your procedure in light of the feedback you received.
Inspect the properties as a final check before calling them “done” (see the development and staging processes).
Final evaluation requires completion of all work (punch-out) and any changes.
Phase IV: In-Phase Implementation and Review of Property Staging and Marketing Strategies
Revise the strategy in light of what you learned during the review.
Keep track of the things we’ve learned from building houses
Create a Strategy for Handling Uncertainty
Do you feel like you can’t get your life under control? Are you consistently going above your financial plan? Have you ever finished a restoration project or overseen a year of lease/rental revenue that was supposed to yield a healthy profit but yielded little to no real profit? In that case, you should outline a Risk Management Strategy:
Too little emphasis is placed on risk management when running a real estate company. For certain companies, it may be a matter of life or death. When most people think of investing in real estate, “risk” immediately comes to mind. There’s no reason not to prepare your real estate company for potential dangers.
The Meaning of RISK MANAGEMENT
The study of vulnerability and the formulation of countermeasures.
Take risks or lessen exposure through measures like risk mitigation and cost-effective control.
Time, money, material possessions, and the possibility of legal action against one’s wealth and reputation are all at stake. Regarding real estate, risk management can be considered a series of preventive measures taken regularly from the outset of a project through its completion and sale. [Part of your Risk Management Plan is ensuring you can access legal counsel and form a formal business entity.]
If you’re doing your job right, you’ll know the answers to the following questions before starting any real estate project:
The anticipated payoff for the work put in
Existing investment value
expected return following investment completion
Duration of the Investment Project
Is it okay if I ask this now? If not, you are not yet prepared to renovate a property to sell it for a profit.
Here are several instances where I implemented risk management strategies while building a property. Good locations and satisfied tenants are my most valuable possessions.
Reduced construction costs are an excellent example. In 1999, an investor bought two 4-unit buildings in a decent area as a single investment. Both buildings included Section 8 units that needed extensive renovations (the proverbial “diamond in the rough”).
We acquired it cheap, had to check it out, and worked out a deal with the seller for a cash refund of $10,000 once we made some upgrades. I discussed having a landscaper take down some overgrown bushes. They asked for a total of $2,500. No, thank you. In just over a month, I used a chainsaw (no slaughter intended) to shape the plants into bonsai, spread mulch on the beds with free mulch from a community center, and fill them with flowers. Apartments were renovated one by one when occupants moved out, and the building’s outside was given a facelift with new landscaping, beautiful painting, and aesthetic fittings. Profited $100,000 in 6 years by selling two buildings at total market value to a nearby limited liability company.
To maximize rental revenue and sale proceeds with little outlay of sweat equity, risks were mitigated by keeping material and management costs to a minimum.
The 2006 sale of a historic home in an economically stagnant historic district is Example #2 of Seller Creativity in a Buyers Market.
Checked the market and bought a duplex from a bank with an extra lot within walking distance of the university and hospital. Turned a poorly planned duplex back into its intended single-family form. We used sale display cabinets and countertops from a nearby hardware shop to install our high-end kitchen and bathroom cabinets. Restored beautiful doors and woodwork, landscaped the yard, planted flowers, and installed cheap high-end lighting (a commercial lighting firm gave him a 50% discount for working on my upgrades). I broadened my possible client base during the sale time (Buyers Market) by contacting real estate managers at a nearby hospital and university. Excellent job offers from the hospital and an Air Force officer.
Managed Risks: Selling a home in a declining neighborhood for a healthy profit in a seller’s market. The house’s location allowed for an increase in both commercial and residential clientele; multiple sale alternatives, including Seller financing, were made available to interested buyers.
Third Illustration of Management for Safety and Profit Maximization: From 1977 to the Present, Put all applicants through a preliminary round of phone interviews and credit checks, then follow up with personal contacts to previous landlords, employers, and family members. Set expectations for residents’ behavior, both orally and in written Leases, give checklists, back up policies, and demonstrate my concern. Respect the rights of your landlord, the terms of the Lease, and your fellow tenants at all times. When a resident has a request, I do my best to accommodate them, whether that means fixing a problem right away or just showing interest in them as people by asking them about their hobbies and telling them how much we value their presence. I am understanding and willing to deal with tenants with a history of paying their rent but now experiencing financial difficulties. I have occasionally hired locals to do odd jobs for me and have arranged payment arrangements and agreements to be notarized. In light of the feedback, The highest praise, and an undeniable risk management safety comment: you are the best landlord I have ever had.
Retained tenants for more extended periods (maximizing revenues); made sure tenants knew my name and felt like I cared about their wants and well-being; these are all examples of risks that I was able to mitigate. As a result, there was less risk of residents being disgruntled with management, damaging the property, or leaving. Additionally, good tenants are attracted to you by word of mouth.
I hope you find this valuable data.
How dangerous is it to put your money into real estate? Only take on as much danger as you feel comfortable with!
Please see www.globalrealestateinvesting.com for details.
It’s been around 30 years since I first started investing in property. To become an experienced real estate investor, I had to put in a lot of groundwork in tenants, property management, purchasing, financial asset management, and property sales. It’s not easy a lot of the time. However, I enjoy being self-employed because of the independence it affords. Over the years, I’ve found great satisfaction in helping others and building solid real estate investment portfolios.
I have experience in various fields, including instruction, human resources, software engineering, product management, and business administration. My background spans 30 years of leadership, investments, training, and service as Director for a sizable Ohio-based Research firm offering government-sponsored training and systems-level programming. Please stop by [http://www.globalrealestateinvesting.com] to check out my site.
I have a Master of Arts in Mathematics from Northwestern University, a Bachelor of Arts in History from Ohio University, and extensive experience in in-house management training.