Things To Know Before You Start Investing In Real Estate
Topics: real estate investing, property investing, real estate investor, property investor
“You either have the time or you have the money”.
This old saying still stands true for property investing. Most people either have the time or they have the money.
People that do not have the money to invest in so called easy investments such as the many off plan properties and townhouses of 400,000 and more, they have to find the time to dig deep and search long and hard for the correct properties that fit their investment profile.
In a times when property prices are very high it may prove quite difficult, however in a time when property prices are low and interest rates are high, such deals are easy to find.
Long terms investors are well known to buy in times when properties prices are very low. However, in hard times it is also hard to get bonds. There is always the proverbial writing on the wall the small print.
Many investors have started with no money and made it big. Though this is not a motivational article in any way and don’t look around for any hype, it is important that one does follow though with the suggestions and at least learn more about all the options provided before making use of them. Also remember to use your emotional guidance system, that gut feeling to know what you are comfortable able and what not.
Who Are You?
What a silly question. We all know who they are, or at least we think we do most of the time.
In property investing there are a 2 very common types psychological profiles of investors. It is very important that one identifies who they are in those categories. If one doesn’t identify the category, they can invest in the wrong type of property and have problems down the line. Many investors have purchased the wrong property to their profile, because they had no idea what type of property would suite them best. Then the obvious followed; they got disappointed and abruptly ended their investing career saying that property investing is not for them.
To avoid this and many other related obstacles lets go over the two main profiles briefly. This will also greatly help with the choices that one makes in the investing options further presented in this document.
High Risk High Return
The high-risk high return profile is the person that loves the risk and can easily sleep at night if they lose their investment. Though this may sound funny to some, there are such people that take risks daily. Investing in high risk property is no different than taking part in an extreme sport. That is perfectly fine for them and they won’t lose much sleep over their risky endeavors, but this may be terribly difficult to live with for those of the opposite profile.
In property investing, a high-risk property is defined by the individual assessing the risk. Generally speaking, this has been commonly associated to properties that have little capital growth in the present and are located in risky areas that are also called “emerging markets”, “low cost markets” or “bottom markets”.
One such example time of writing in South Africa is the townships. Property in these areas are starting to take off, however by most low-risk investors these are seen as high risk to life and to losing the property to squatters and other factors that are out of their control.
I am often asked why are these properties high return? The answer is simple, when these areas reach maturity the returns will be calculated in the thousands of percentages.
Therefore, high-risk investors that can stomach the risk, earn a passive income from such properties from the day they buy and to the day they sell. Over a few years investors can easily earn between 500% and 1000% return on their money.
It is to be remembered that high-risk is only defined by the individual investor and usually high-risk investors do not see themselves as such.
As one of my mentors once said to me, Call me a contrarian investor.
Low Risk Low Return
The opposite of high risk profile is the investor of low risk low return. Such investors will only invest in a good area or established market where they find good capital growth and they know they can sell the property any day they choose and do so without much problem. No risk of squatters and they can visit their investment whenever they wish as it is in a safe area. Often such investors also manage their properties.
This type of property, at time of writing, is commonly associated with the preferred security complexes with entry level townhouses.
Now that we briefly and generally explained two main types of investors, it is to be noted that there are many others in between. However such subject is far beyond the scope of this article.
Just be aware of how adverse to risk you are as a person. What is important for every investor is to know how much risk they are willing to take before they stop sleeping at night.
As Richard Branson once said in a book, don’t do anything that you will lose sleep over.
With this endnote we can get started with the technicalities in the next article.
Sean Wheller is a real estate agent, investor and the founder of the largest online property investing education website in South Africa, www.PropertyInvestorNetwork.co.za which specializes in real estate training, property investing courses and seminars.
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