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Principles of Real Estate Investment: Principle Four

This blog post is a continuation of a previous Real Property Management East Valley posting entitled “Principles of Real Estate Investment: Principle Three”, discussing fundamental principles of effective buying, selling, and managing property.

Principle Four:  Profitability

Understandably, most individuals or groups pursuing real estate ventures are doing so in order to make a profit; it of course doesn’t make sense to pursue an opportunity that would lend itself to netting money when the deal is completed. However, profitability needs to be kept in proper perspective.

That might sound strange. Because profit is the ultimate outcome, shouldn’t it be the primary, and perhaps sole, focus of a buyer or seller? Actually, without taking the other principles into account, one can easily find themselves chasing an opportunity that would in fact yield substantial income if it were to be successful, but with not enough time and energy available, it being too high of a risk, or other situations such as poor market conditions or bad tax circumstances, it can prove to be folly.

Making money and keeping money are two different things. Yes, an individual can spend 80 hours a week pursing a property that will net a $20,000 profit, but if instead the same individual were to spend 60 hours per week pursuing two smaller projects that only yield $10,000 each, the latter is without doubt the better choice: 20 hours a week is being saved.

But such situations are often not as straightforward: the individual may be lured into the ‘more lucrative deal’ without considering the full scope of time, energy, and risk involved.

For principle four, the question about profitability that needs to be asked revolves around personal assessment:

Is the amount of money I’d make with this deal worth everything I’d put into it?

Principles of Real Estate Investment: Principle Three

This blog post is a continuation of a previous Real Property Management East Valley posting entitled “Principles of Real Estate Investment: Principle Two”, discussing fundamental principles of effective buying, selling, and managing property.

Principle Three:  Time

One of the biggest mistakes incoming or would-be real estate investors consistently make is underestimating the amount of time necessary to successfully complete a full project. Previously made assumptions of finding a good deal, making the buy or sell, and walking away with tangible funds quickly often don’t come to fruition.

Along with not allotting enough time to see the process through from start to finish, many new agents spend far too much time doing the wrong things, or handing tasks that should be delegated or off-loaded. Any and all time that is spent on such tasks, even if they are important, urgent, and needing to be done by the agent, is time that cannot be spent on finding and perpetuating other opportunities.

A wide variety of strategies can be employed within the different realms of real estate, and when selecting which route to take, a basic rule to remember is that the more time it takes to complete a transaction from start to finish, the less likely the strategy will work out long-term. Burn-out is an unfortunately common occurrence within real estate, so whether you are an experience agent, or trying things out for the first time, remember that time often carries more value that money, because you can earn more money, but not more time.

For principle three, the question about time that needs to be asked revolves around assessing the requirements:

How much time will I need to make this investment possible?

Principles of Real Estate Investment: Principle Two

This blog post is a continuation of a previous Real Property Management East Valley posting entitled “Principles of Real Estate Investment: Principle One”, discussing fundamental principles of effective buying, selling, and managing property.

Principle Two:  Risk

In many instances, risk is described as a two-edged sword: on one side, you have the ‘low risk, low reward’ edge, and on the other edge, you have the ‘high risk, high reward’ edge. This is simply untrue.

The consistently successful individuals and companies we recognize and hear about almost always did not achieve their tenured success on the back of an ultra-slow, creeping forward style of business. They took strides, moved forward as quickly as they dared, and didn’t wait for absolutely perfect conditions. Concurrently, they didn’t win by gambling either. Bill Gates did not build Microsoft on some extravagant, risk-everything approach.

Gates and other successful investors built their fortune and prowess off of managing risk properly, and that doesn’t just mean they magically managed to navigate some kind of ‘medium risk, medium reward’ middle ground. Sure, some of their ventures didn’t pan out as they would have liked, and some took longer than anticipated, but they were good at managing risk by doing two things really well: Accurately defining how much risk was actually involved, and confining or lowering the amount of risk when they could.

An entire book could be written on these two ideas (and there have been), but very simply put, anyone can make a sound investment by really asking themselves and those they were doing business with the right questions.

For principle two, the question about risk that needs to be asked revolves around risk reduction:

How can I downsize my risk as much as possible?

Principles of Real Estate Investment: Principle One

Many who visit our site are experienced professionals within the field of real estate; they’ve walked the walk, and have multiple properties and investments to their name. Others are brand new, just learning the ropes, and trying their best to get a feel for what real estate might be like, and if it’s worth it to them.

Interestingly enough, the ‘Is it worth it?’ question is something that good investors are very familiar with, something they’ve mastered. Every decision involves determining if a particular opportunity is wise to invest in and pursue, or if this happens to be one they allow to pass by. New or experienced, every buyer and seller of real estate needs to understand the non-monetary resources and principles that are at stake. Listed below is principle one, and more fundamentals will be discussed in further blog posts.

Principle One:  Effort

Many assume that the most important resource to be discussed (if not money) is time. However, calculating a time investment without taking into account the effort necessary within that amount of time would be folly. Although hard work is a celebrated ethic of good business, be wary of how much energy will need to be spent in pursuit of an investment.

A common occurrence in real estate is the purchase of a property that is further away from one’s location or hub than they would have liked. Although a time component is certainly a consideration (does the person have enough time available to travel back and forth?), if the efforts needed to complete a successful real estate transaction aren’t sustainable…if someone doesn’t have the energy to see it through the end…it is likely not a wise investment.

For principle one, the question about effort that needs to be asked revolves around sustainability:

Can I exert sufficient effort long enough to complete this project, or is burn-out inevitable?