A Speculator goes into a real estate transaction with the attitude that real estate always goes up in value and that simply by playing the economy and waiting out any economic dips the investment will appreciate and money will be made in the end. A Speculator looks at the future and sees reward by passively waiting until the value goes up.
Speculation tends to be risky because little can be done, at least in real estate speculation, to mitigate against the downside. As we know now, there has been an average of 30% on the downside since the real estate market started to decline in 2006. In many communities the value of property has fallen to the level of real estate in 2001 or earlier. Essentially, anyone who bought or refinanced property after 2001 now has no equity unless loans have been paid down substantially. Speculation is much like gambling, and there is a great chance of losing when gambling.
You should learn from the mistakes of the speculators during the boom years. There are certain characteristics you will want to have in order to be a solid investor:
1. You should study your market carefully before you start to buy real estate there. Study past market trends and consult local experts who will be able to tell you what they expect will happen in the near future.
2. Invest in your home market, or markets you know very well. You will be better able to react quickly when you are familiar with the market. Then branch out to other areas.
3. Build your team-Agents, title company, attorney, home improvement specialist, and others. Prepare as much of your team in advance of your property acquisition as possible. Unlike Speculators, who tend to go it alone, Investors surround themselves with people who can keep the property transactions on track.
4. Have a goal in mind and know your exit strategy. The goal should provide a win-win situation for everyone involved. The goal should minimize risk and maximize the likelihood that the deal will go through smoothly. The Investor will also know what the end result is going to be at the time that the property is purchased. Profit is created going in to each investment by determining the most appropriate exit strategy from the start. Always look at cash flow as a rental if the property is going to be held any length of time. Don’t expect that property appreciation will take care of profitability.
5. Investors want to buy properties that make sense as an investment for as many people as possible. Make sure there are some cash buyers who are actively investing in your market. Make sure rent rates in your area will generate positive cash flow if you plan on holding a property as a rental. You should not have to convince anyone of the value of your property when you go to sell it. You should be able to offer it with a price or terms that will draw people to the it without any trouble. To buy right, you must also be able to sell right
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