subject: Are You An Investor Or A Speculator? [print this page] 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.
Since little can be done to lessen the impact of market fluctuations, speculating can be a risky strategy. Since 2006, prices have dropped an average of 30% or more. Many communities are now seeing their properties at the same price level as in 2001 or earlier. Basically what this means is that anyone who bought a property since 2001 now has little to no equity, unless they have paid down their mortgages significantly. Much like with gambling, there is always a chance you'll lose when speculating.
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. Analyze thoroughly your market before you get involved in buying real estate in the area. Be familiar with the past trends, and consult experts who can tell you what is likely to occur in that market in the near future.
2. Start in your home market, or another market that you are very familiar with. Being familiar with the market will make you better able to react quickly if things change suddenly. Once you have started at home, you can then branch out to other markets.
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 look for properties that make sense as an investment for a wide number of people. Make sure that there are cash buyers investing in the area. If the property is being held as a rental, make sure that the rental rates in the area will cash flow the property as a good investment. When it comes time to sell, good Investors never have to fool someone into buying something that is not of genuine value. You should be able to offer a price or terms that will make people flock to it. Buying right means selling right also.
