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?