When we talk about the real estate market, we need to understand the amplitude of the subject. For most people, the real estate market is only relevant when relocating, downsizing, or when you require more space in a home. In other words, generally people only care about the real estate market when they have to buy or sell a home. However, the real estate market revolves around everything that deals with land. At its base, the real estate market is all about land and what is happening with that land.
A growing number of individuals see a business when they look at the real estate market. They see a money-making commodity that can be understood, managed, and profited from. For them, buying and selling real estate is directly linked to customer demand, need, and interest. Working in the real estate market can bring significant profits, but they are directly proportioned to the risk assumed by stakeholders. It can, however, be a quick way to wealth.
Regardless of your real estate market involvement, there are some hard truths that you need to understand. Just like any other business, practice, know-how, experience and patience are required to succeed. No real estate professional became a millionaire overnight. Here are some of the truths that might help you along the way.
A Sure Way to Wealth?
When diving into the real estate market, it’s essential to understand that this profit won’t come overnight while being a possible outcome. Most real estate investors apply a strategy to acquire wealth in a gradual manner. This gradual process can extend for years and decades because high returns take time. To increase the chances for profit provided by the real estate market, you must look at it as a business venture, especially if your investment path takes you towards rental homes, commercial real estate, and/or raw land. Proper management of tenants, space, and maintenance is crucial, not to mention the amount of time invested into a property.
Still, there are several ways through which you can achieve wealth through the real estate market. Investing in real estate holding companies is similar to stock investments. Values can go up and down, and it’s your job to mediate your investments accordingly. Through investments, cash flow can reach values three times higher than the national average. Because of this, it is believed that the real estate market is a safe kind of investment. Without saying that there are no risks associated with real estate investment, this risk is lower because the market appreciates over time, even with the economy’s ups and downs taken into account.
Study the Playing Field
Like with any business, the real estate market isn’t something that you can conquer without dedication. That is probably why not many real estate investors are moguls of the industry. Learning the skills necessary to thrive in the industry takes time. Many real estate investors might grow fast but then crash because of poor planning, getting ahead of themselves, and thinking they are stronger than the market itself. This is not the case. Even in other industries, you have to know when to invest and when to hold your horses.
There is so much more to the real estate market than dealing with people and managing properties. Successful investors understand the complexity of the market. Becoming an excellent real estate investor is about putting in the hours, yes. However, you must also rely on business ingenuity, organizational skills, and all the financial and legal wheels that make the whole market go forward. Mortgages, insurance, local and state legislature, news related to the real estate market, and overall economy are all elements that investors must know like the back of their hands. The reason for this is the intricacy of the real estate market. All facets of the market are interconnected and depend on each other, and so does your return on investment.
Slow Short Term Returns
The real estate market is an appreciating industry. No matter what is happening across the world’s economy, during economic booms and recessions, the trend throughout is appreciation once the market settles down. This is why the general consensus about the real estate market is that, over time, values go up. Profit based solely on inflation rates is a sure thing for investors, but if that is the only strategy you follow, you have to take into account that patience is of the essence. Inflation doesn’t usually happen overnight, and profit based on inflation can take time.
Other methods to increase your profit are based on speculations and foresight, but luck can also help. If all else fails, luck can help in the short term, but luck is not a strategy. Study the market and look at 2022 trends. The goal is to buy cheaper than you sell. For this reason alone, if you can determine which part of a market is expected to grow, your profit is halfway in your pocket. Neighborhoods that are going through a rejuvenation process or gentrification trends have a higher chance at more significant short-term results, but long-term results will be higher. The one thing you want to avoid is buying when the market is high. An appreciating area can saturate, and if you invest at the end of that cycle, your long-term return on investment might be small, or you might also wind up losing if you sell too soon.
These ups and downs in the market are detrimental to your profit when you sell. You can buy at any point and wait for prices to grow, but selling should only occur when the price is higher than when you purchased. Even if it takes longer than usual for prices to reach a profit-generating height that you are comfortable with, it’s better to wait than to get a minimum profit on something with the potential to exceed expectations in a few years.
Harden Your Skin
The real estate market isn’t complicated as all you’re actually doing is buying and selling properties. However, knowing when to buy and when to sell isn’t easy. Just like any other business, the real estate market is based on supply and demand. If there is a lot of supply and slow demand, then prices stagnate or drop. If demands are high, but supply is low, prices climb. This is a balance that leans one way or the other and keeps the market leveled. Other related industries control this dance, but it can also be affected by other external forces. Take the COVID pandemic, for example. Supply chains experienced shortages across the industries, impacting housing supply and demand, allowing prices to skyrocket during 2021.
Unforeseeable changes can come and flip the real estate market over a short period of time. But that’s what makes the real estate market such an exciting venture. The fact that it is risky, unpredictable, and surprising at times. Having thick skin is necessary because even if you’ve been in the real estate market for decades, there are still things you can learn. The real estate market can work for you with a few essential skills like patience, negotiating, risk management, and know-how. However, expecting overnight profit and setting unachievable goals won’t do you any good. It can take decades for real gains to happen, and understanding the market’s inner workings is essential.
Economic Risks in Investing
Changes in the market can catch you by surprise, but even if the economy is just going through a slow patch or, worst case, a really bad stretch, your investment can turn sour. You must understand that even the most prepared real estate investors can be caught off guard. The market shifts, and your renters might not be able to afford their monthly obligations anymore. Similarly, property values can be affected by a struggling economy, and they might not always meet your appreciation expectations. That is why you must always have a backup plan. Take risks but make exact calculations for proper risk management. Whether you’re a landlord basing your decision on 2021 rental trends, a real estate investor, or a property manager, losing money isn’t an easy thing. A good market based on a thriving economy should bring you profits, but even that comes with a risk - a much smaller risk but a risk nonetheless.
The logic being risk management is knowing that a small risk can bring small returns, but a more significant risk can bring larger returns. The two are connected to each other. You can’t have one without the other and knowing how much you should risk on any investment is something only time and expertise in the real estate market can give you.
The real estate market is a competitive game. That comes from the many types of real estate investments available within the market. However, the fact that you paved your way towards becoming a property manager or a landlord doesn’t mean you can’t invest in other types of real estate ventures. Whether you started with residential real estate, commercial real estate, industrial real estate, or land, the other three are right there at your discretion. That is why investors juggle these opportunities on the side of their revenue-providing ventures. If you want to succeed in the real estate market, you must set goals and push yourself to exceed them. Motivation is important, but a passion for the business comes in handy. How else will you be able to push through after a sale falls through?
Many things can interfere with your real estate agenda. Still, the fact that politics, legislation, changing governments, and demographics can come and rock your boat is precisely why it is so exciting to succeed. It challenges you and pushes you to overcome obstacles. At the end of the line, you will receive the profit you’ve been looking for, yes, but the experience acquired along the way is what will help you grow as a real estate investor.
Let us know in the comments below if you want to share some of your ideas or experiences in the real estate market. The good and the bad, the ups and downs, are what keep us on our toes. Like & Share this article with friends, family, and fellow real estate investors, and help the industry grow.