Knowing When To Cut Your Losses

Buying and selling real estate is one way to guarantee an interesting business career – but it is not without its drawbacks. One of those drawbacks, the significant risk factor, is part of what makes it interesting. But if you can play the game well, you need never become one of the many people who falls under the intense pressure of trying to turn a profit. Sometimes, real estate is as much about trying to find the smallest loss on a deal when the avenues of profit and breaking even are closed off to you.

Whenever you buy a property with the intention of increasing its resale value, you do it with some amount of optimism. The mere thought of “If I can get this work done, source the materials and get it to market on time and on budget, then I will make a profit”, leaves open three ways that things can go wrong. Maybe the work will not get done as well or as quickly as you had hoped. Maybe the materials will prove harder to source than you had planned for, and as for the schedule … well, unforeseen circumstances make fools of us all.

The fact is that sometimes, despite your best efforts, you will see your intended profit begin to shrink – and sometimes, it will disappear altogether. It is at this point that you will be tempted to bring everything to a sharp conclusion and just sell for whatever someone will give you. This is a big mistake. If you hold on and set a new, realistic deadline and price you can at least cut your losses, and maybe live to develop again.

Commercial Real Estate – How It Changes Things

Buying real estate is always loaded with questions and variables, and it takes a confident and decisive individual to get it right and make a profit. It can be an even more vexed question for those who are looking to buy commercial real estate. When you are buying and selling a house, the important issue is that you do enough to the property in order to turn a one-time profit. Buying a commercial property is another issue entirely, as you need to ensure a lifelong commercial viability.

It is safe to assume that people who buy commercial property are more likely to be in the deal for the long haul than are people who buy residential real estate. It is not always the case, but it usually is. Therefore, there are different things that you need to be aware of when buying a commercial building. The first of these is where it is located. Ideally, you want somewhere with good commercial outlets nearby. If you invest wisely in a well-located commercial property you can guarantee good profits simply by virtue of “walk-by” business.

Commercial real estate has taken something of a hit in recent years due to the feasibility of running a business from home. Now that people can run a company from their computer with minimal start-up costs, people are choosing to do so in favor of paying the often high costs of getting set up with “premises”. There are businesses, though, which will always need a physical edifice – such as restaurants and garages. Owning a commercial property near to one of these, their workforces and their customers, can pay off in a big way

Buyer Beware…

There is a Latin phrase – caveat emptor – which essentially, in English, means “buyer beware”. The message intended in those two words is that anyone purchasing the item so labelled needs to be careful. The price may look like a steal, but ask yourself before you go any further… who is doing the stealing, and who is being stolen from? You may well find that if a deal looks too good to be true, the reason for that may be that it is far too good to be true.

What you need to be sure of before you sign off on any deal is that the money you have budgeted for the purchase, in addition to the money you have earmarked for any changes to the house, will be recoupable from the sale of the house. If you buy a house and then get inside the property to get a close look, the last thing you want is to see that there are problems which will cost a lot more to repair than you thought they might. Suddenly, your big profit is looking like a small profit, a break-even deal, or even a loss.

Before you buy a house as a “fixer-upper”, think about what needs fixed and do not just look on the surface. You may need to have a survey carried out on the property to make sure that it is not carrying other faults that could end up doubling what you have to pay to get the house up to scratch for the purposes of selling it

How Conservative Should You Be?

When investing in property, if your goal is to make a profit you have to take into account what kind of profit you want to make. Some people will say that it is easy to make a profit, if by profit you mean a small one. Buying a house cheap, and doing the minimum necessary to renovate it, may well see you make some money on the deal because you have taken a house in disrepair and sold it in a liveable condition. However, there is always the danger that you will find more that is wrong with the house the longer you work on it.

You have to have a strategy when it comes to renovating a house, because without being firm and decisive you will allow far too much slippage when making decisions, and it is this slippage that can turn a likely profit into a loss. Instead of taking an overly flexible strategy, you need to have a certain amount of strictness when deciding what you will do. Sticking to your philosophy – up to a certain point, anyway – is important because if you fail to stick to that philosophy you will be hesitant in making crucial decisions.

Equally, though, you need to be ready to spend money to make money. Being conservative and unbending as regards your budget could see you not reaching a decent price on the sale of any renovated property. Have a budget you would like to stay within, and a slightly higher “contingency budget” which allows for potential mishaps along the way – by doing this you will increase potential profit

You Won’t Be Living There, So Don’t Design It For You

One problem that seems to arise more than almost any other when people try their hand at real estate development is a kind of tunnel vision. This happens when people buy a house with the intention of carrying out work on it, and decide that there is only one way to go with that work – they’re going to make the house irresistible to buyers. Having only their own opinion of what constitutes “irresistible” to go on, they make the mistake of designing the renovation to look like their own dream home.

We can all agree that it would be a fabulous thing to live in our dream home. But that is not what real estate development is about, sadly. How much would you like to live in someone else’s dream home, if you can’t choose who that person is? That is the choice you are presenting a potential buyer with when you develop a property according to your taste. The upshot of this is that you limit your profit margin. You cannot develop for your tastes, because you’re not selling to yourself.

If you are looking for wallpaper for your project, do not spend a lot of money on a certain design because you “saw it in the store and just had to have it”. The end result of what you are planning does not have anything to do with you “having” that wallpaper, so unfortunately you have to limit the individualism of the project. The key must always be the profit you can be confident of realising rather than one you might realize if you find a buyer who has all the same likes and dislikes as you do.

Do Your Sums And Make Sure They Add Up

When someone tells you that there is good money in real estate, they are not going to be telling you anything new. We all know that there is profit to be made there, and no-one will get any medals for breaking the stunning news that it can be a lot of money. What we need to be careful with is when someone describes something as a “can’t miss” prospect. There is no such thing in real estate, and claiming that there is will show someone to be a fantasist.

When you buy real estate for the purpose of renovating it and selling it on, it is important to be as dispassionate and profit-focused as you can possibly be. One part of this is to do all of the math involved in buying and selling, and make sure that the deal has the largest potential upside you can possibly manage. This means getting the lowest price possible when buying the house, spending only what is necessary to make the house attractive to potential buyers, and doing the work so well that you push the selling price as high as you can.

Think of it this way. Your buying price added to your budget for any work done to the house (this includes materials, labor and any arrangement fees you may need to pay) must be lower than the price you get when you sell the house. Anything other will simply lead to you making a loss or merely breaking even – and if you have been working on the house when you could have been earning a wage, this will be a net loss. You don’t just need to be confident that you can turn a profit on the deal, you need to seal off any potential avenues which could lead to you not turning one.

Even after all of this is done, you are still left with the question of how you can make the profit as high as possible without spending too much money. Avoiding vanity projects is important here – if you are thinking of tiling the bathroom all in gold, stop right there because it will never make you more money than it costs you

Buying At Auction – A Sensible Beginning

Finding a house at a decent price can be troublesome for the first-time real estate developer. Without a doubt, there are bargains out there, but it depends how far “out there” you are prepared to look. Real estate vendors will usually put the houses where they stand to make a decent profit front and center, at their offices and on their websites. It can be hard to find a good deal this way, so you need to consider all options in your search for the right property.

One place where you might wish to look is at a real estate auction. There are numerous reasons why someone may look to sell a real estate property at auction. For one, there is the obvious case of government-seized property. Where someone has made a living from the proceeds of crime, their assets will be seized by the government and then sold for whatever profit they can bring in. The price is often lower in these auctions than at a normal real estate deal – the price is set artificially low to encourage a sale.

Additionally, some banks and mortgage lenders will sell repossessed properties at auction. Again, they will be selling in order to realize some kind of profit, to get any kind of money from a deal gone wrong, so they will lower the price on a house. For first time buyers particularly, this can be an excellent way of getting a decent property for a low price. What you do with it afterwards is your own choice – but often a few simple changes can be the difference and make you a handsome profit.

It’s a Fixer-Upper!

When you are making your first steps towards becoming a real estate developer, it is often helpful to start out with a deal that is financially supportable. Frequently, you will see a house appear on the market that looks like it will need a lot of work – it may have been lying vacant for a time, or may have been damaged by a storm, a flood or some other horrible incident. These houses usually go on the market for a fraction of their market value, and if you have the borrowing or spending power to buy them and do them up, they can be a quick and easy profit.

The simple reason behind this is that some people simply want to up and move when their old house has been damaged, and they will sell cheaply for a quick deal. This benefits the buyer because it allows them to pay a reduced price and then spend what it takes to turn the house into a viable, buyable property for a family to move in to. Often there is a significant profit margin because the house is located well, architecturally fine and attractive to new buyers.

These houses are known as “fixer-uppers”. When you buy them, they need a lot of work. But if you are prepared to put that work in, you will find that the whole process is not that expensive. As long as you have done your research, there is a very good chance that you can turn a profit which will allow you to try again with another fixer-upper or a sounder property.

Don’t Let Your Heart Rule Your Head

One of the classic rules of business is that you cannot let your emotions cloud your judgement. If you do, you end up making decisions based on a biased view and not on the facts of the situation and the potential upside of any deal. The danger of this is that you can take a situation which is pitched in your favor and end up turning it into a failure. There are many decisions in life where you can go with your heart and have it all turn out fine. There are others where you cannot, and real estate is one of the areas where this applies.

You can look at a house and love it – think the location is wonderful, the décor amazing, and the price reasonable – and be tempted to buy it. But if you are getting into real estate in order to make a profit, then it stands to reason that you need to think about things more soberly. Yes, you love the house. Can you be sure that a potential buyer will think the same? If you are planning to make changes to the house, are you making them to suit your taste or someone else’s?

The issues of trying to make a profit from real estate are varied and complicated, and you risk making a loss and running yourself into financial difficulties, and even bankruptcy, if you are not careful. And yet many seemingly clear-headed people get tunnel vision when working on a project and turn their back on sound advice. Don’t be one of those people.

Buy And Sell – Profit Is The Key

The real estate sector can be a very lucrative place to do your work, and at the same time carries major risks. This risk / reward balance is one reason why it is one of the major places for speculators to make their money. If you get it wrong, you can end up losing nearly everything you own. Get it right, however, and you can end up a millionaire or better. People who have the nous to make the right decisions, and the chutzpah to back those decisions with cash, can become hugely successful in the sector.

To many people, a house is a home, and when they buy one they settle there for the rest of their lives. To many others, they may buy and sell a few times in their lives. To others, however, houses can be bought and sold in order to realize a big profit – it is these people who are really climbing what is known as the “property ladder” in some countries. Buy a house, make improvements, sell for a profit, buy another house with the proceeds. Increase your profit margin each time and you can make a very good life for yourself.

Of course, not every step on the property ladder goes as well as you would hope. Many people do everything the way they’re supposed to, follow all the rules, and still end up making a loss on the deal. The financial market will have a big effect. Given that the world sees to be heading for recovery, with house prices still at recession-era lows in many areas, now could be the time to invest.

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