Real State Investment in Texas

6 Facets of Real Estate Investing You Must Understand Before Getting Started

Whether the idea of real estate investing is new to you, or something you’ve been considering for a while, it is important that you have a good grasp on the basics before you begin. However, it is altogether too easy to get bogged down in the educational process, then the research process, and in that time you may have lost out on some great opportunities.

Rather than let you struggle to get started, we are going to look at six facets of real estate investing that you must understand before you begin. These are what you should consider the essentials and they will allow you to have a speaking familiarity with it, but not so much information that you suddenly become overwhelmed and eager to toss in the towel.

  1. Financial terminology – As a major area of investment, real estate investing has a long list of unique terms and vocabulary. Most of it is associated with numbers and figures. For example, do you know what cash flow means in relation to real estate investing? What about ARV? Along with those two terms, you need to give yourself time to learn what appreciation means, monthly income and expenses, cap rate, returns, HOA, net income, and cash on cash return, as your minimum operational vocab.
  2. How to do it – Not quite an investing strategy but just a working understanding of the ways you can accomplish real estate investments. Look at the various approaches, how much they can bring in returns, what they require in output, and if they work with your goals or capabilities. In other words, consider the various routes in real estate investing and choose the right routes for you.
  3. Make or break – Once you understand how it is done, you need to learn what it takes to make successful investments and what steps each type of investment requires. In other words, take the time to find answers to questions like “what does a successful investment in this type of real estate look like, and what does a disastrous investment of this type look like?”
  4. Pulse of the market – Did you know that some areas are ripe for rental investments while others are all about commercial real estate investing? Take the pulse of the markets you are considering and then move on that information in the most appropriate ways.
  5. Risk assessment – It would be a lie to say that real estate investing is risk free. There is no such thing as any sort of risk free investments. The amount of risk you are comfortable assuming is entirely up to you. The point is to never go into a deal blind to the kinds of risks it could pose. As an example, a hospital based REIT recently took a hit in share prices when one of its assets reported liquidity issues. Would your investment returns be based on such issues? Know the landscape before entering into it.
  6. Getting out – Though most advise holding real estate for long rather than short terms, you should always have a low-loss escape plan or exit strategy. It is also part of basic investing to have an end game in mind (sell, hold, etc.). What sort of plans do you have for your real estate holdings? For instance, a big blunder made by first time “flippers” is to have no “plan b” for the property remaining unsold or for other issues to occur.

As you might realize, these are simple things to learn and understand, they are also quite easy to employ as you get started with real estate investing. Take the time to learn the basic terms, understand just how it works, learn how to gauge good from bad properties and markets, find out where to invest in any specific category, uncover risks and have plans for the end of the story as well as the initial investment. When you do this, you will never make a bad deal or decision.