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California Real Estate Advisory: Principles for Healthy Real Estate Investing

July 6, 2018

Any kind of investing, including real estate, brings the most value if you can walk the fine line between maximizing gain and minimizing risk. However, finding the golden balance is something only you can do (alone, or with the help of a real estate advisor in San Diego). There’s no cookie-cutter solution that will apply to any investor or investment. But, there are principles that many investors use to guide their decisions.   

Understand that proforma is only a projection

With real estate investment, you’ll often see that deals and offerings are based on pro forma analysis. While pro forma analysis has its merits in assessing the financial potential of a property, it’s still only a projection based on assumed events. Don’t take these numbers for granted and always use pro forma analysis judiciously.

Decide on your exit strategies

Before you invest in real estate, know your exit strategies. A great deal of profit is made when you’re exiting the investment, so you want to know your strategies upfront. Exit strategies can be: buy and hold, refinancing, renovating and selling a property, converting and selling a property, etc. Actually, you can have more than one strategy ready. The other benefit of deciding your exit strategies is that it keeps you focused on the goals.

Diversifying your portfolio

A diverse portfolio protects you against market volatility and short-term fluctuations in asset classes. In the real estate asset class, there are diverse investment vehicles that can behave differently during a change of market conditions. To practice effective risk reduction, you should consider your current and potential future liquidity needs and how you want to capitalize on your investments. You’ll want to know how different investments will contribute to your short- and long-term goals.

Choose your investment management style

You can be an active or a passive investor, based on how much involvement and control you prefer. This can depend on your experience in real estate investing. As you build your portfolio, you’ll probably find you need more time for management on a macro-level and less hands-on involvement. But, in the beginning, you could prefer being involved on a daily basis.

Always negotiate

Whenever you are offered an investment opportunity, negotiate the terms to meet your needs as much as possible. It’s highly unlikely that the deal is non-negotiable, and this especially rings true for real estate.

Think about the return you’d like to get

When you get a deal, it’s good to determine what kind of ROI you’re looking to get. If the deal doesn’t meet your expectations, walk away from it.

Don’t follow blindly

Don’t follow trends just because you assume that others know what they’re doing. They may not. And their investment plans and goals may not be aligned with yours.

Perform due diligence

Always run the numbers before you close a deal. If you are not confident you can do it on your own, retain experienced services in real estate advisory. Due diligence involves a number of actions you need to perform to make sure you’re making the right step. You should inspect the property itself, the books and numbers, reports, as well as commission an unbiased property inspection. Ask the other party for references and actually contact them. If you are branching out into a new type of asset for you, get advice and deal evaluation from someone who has a deep understanding of that market.

You should also make sure you know what tax implications the investment is going to have for you. Will there be any tax benefits – while you hold the property or when you sell it? You must know how the investment will affect your personal income return.

Take calculated risks

It’s good to have a safety net fund on the side. Generally, don’t invest more than you can afford to lose, even though the gain may feel terribly tempting. Try to always have an emergency fund that you can tap in a worst-case scenario.

This article was originally published by Xpera Group which is now part of The Vertex Companies, LLC.

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