Real Estate Investment as a Business
People who have successful real estate businesses can become very rich, and there is no disputing that. However, as with any business, there are those who succeed, and those who fail. Dive into real estate at the wrong time, in the wrong way, and in the wrong place, and you can end up with a a financial hangover that can last for many years.
It is important to remember that investing in real estate has similarities with the stock market. Invest in a timely way, in a rising market, and with a company that is rising in value faster than the market, and you can make a fortune on the stock market. Selling at the right time is also crucial in the stock market. People who buy at the very bottom and sell at the very top of a share wave do not exist; those who succeed look for signals that it is time to buy and time to sell, and then follow their signals. Real estate is the same, except that it can be much slower and more difficult to sell real estate in a falling market. Often, during a steep fall in prices, confidence is so low that there are no buyers for your house or apartment, even at a lower price than you paid.
As an investment you can buy real estate for two reasons: capital gains and/or income. You need to decide which of these you are trying to do, and then look for property with the right balance of risk and reward for your situation. It is much the same as choosing shares, where you can go for high yield stocks with less capital growth potential, or low cap stocks in a new small businesses which looks set to soar. This decision is one you need to take with care.
With real estate, you can opt for a secure rental income, or go for speculative and quick capital gains; or a mix of both anywhere in between. For most people, buying to rent may be the best and least risky option, but timing remains of the essence. In the UK's first ever boom and bust property market, in the 1980's, ordinary homeowners suddenly started buying to let thinking that prices would go on rising for ever. Just like stock market collapses such as 1987, all ended in tears in the UK property market.
As a recent report in the UK property market shows, property there is becoming unaffordabvle for first time buyers. Such a situation led to the last price collapse. In the US the recent problems with the sub-prime market has caused substantial problems there, and much worse could be on the way.
So, there are many things to consider before diving into diving into real estate investment as a business. get it right, and you will never regret it. Get it wrong, and your finances will remind you of your decision for many years to come.
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