Once you’ve built a successful business and the money is starting to pour in, the question on every entrepreneur’s lips is what to do with it. You could plow it all back into your business, but if your company has reached its full potential, this might not be a good idea. Another place you could put your money is the stock market, but stocks are volatile and can lose all of their value in a very short space of time.
Cash isn’t a very good option either. Thanks to constant inflation, its value is eroded away over time. All these factors mean that many entrepreneurs are looking at the property market is a possible way to store wealth. The great thing about property is that, even in a bad economy, it still retains a lot of its value.
Yes – there’s a temporary dip during a recession, but property prices have a knack of going up and up, seemingly without end. The reason for this has to do with how limited the supply of housing is right now.
Space is finite, meaning that there are only so many dwellings you can cram into every square mile. Over and over again, property has proven to be the best investment for entrepreneurs wanting to make a return.
What do they need to know about the housing market before they dive in? Here’s some advice for entrepreneurs looking to get into real estate.
Understand the difference between real estate investing and the real estate business
If you’ve already got a business up and running, the whole purpose of investing in real estate is to generate more money to support your business, not replace it. But all too often, entrepreneurs get bogged down in all the deal-making that goes on in the real estate industry.
Remember, unless you want to get into the real estate business, there’s no point spending all day negotiating with different buyers and sellers in the market: that’s the job of a real estate firm. As an entrepreneur investor, your job is simply to hand your money over to an investment firm and tell them to invest it in property. It’s their job to find the best properties and negotiate the best prices, not yours.
Many entrepreneurs get caught up in the complex real estate market, trying to navigate all its pitfalls. As a result, they end up screwing themselves over, never having enough time to work on their own business and projects. Pursuing deals should never become an end in itself: it’s just a means to help you store more wealth.
Don’t start buying properties that sellers don’t want to sell
Knowing whether or not the seller is willing to sell is important if you want to get the best property deal. Sellers who want to sell are usually willing to lower the price of the property in order to make the sale.
Take a look at the price history of the property you want to buy. If the property has been on the market for a year and the seller hasn’t reduced the price, the chances are that they aren’t that motivated to sell and that they’re happy just to wait around until they get the price that they want.
If, however, the prices has been steadily coming down, it’s an indication that the seller is keen to get rid of the property fast, perhaps because they need the money. This is the ideal position to be in, as a buyer, since it puts you in a stronger negotiating position. Sellers are often willing to do whatever it takes to get their property off the market and close the deal.
Do a financial analysis of returns, just as you would with your business
As a business, you’re constantly calculating how much revenue you expect to generate and what your costs will be. Unsurprisingly, as an investor, you should do the same. Whenever you consider buying a property, make sure that it makes financial sense.
Just as you wouldn’t make a business investment without working out whether it was an attractive proposition, neither should you make a property investment without doing the same. Don’t buy properties that have higher values than your analysis says makes sense.
It’s worth pointing out that sellers will always try to convince you that their property is worth more than it is. They’ll point to all sorts of things, like its exceptional location and transport links. Be wary of such claims. Also, be wary of proforma estimated valuations, since these are based on averages, not the actual value of the property itself.
According to TripleNet Gateway, it’s essential to look at things like tax returns, property tax bills and maintenance records for the property. This will give you a sense of the real income that it is capable of generating.
Don’t wait for that perfect unicorn deal
Many entrepreneurs in the market for property want to wait to find the perfect deal. After all, they want the biggest return possible on their money. This causes many entrepreneurs to be forever waiting for the perfect property while they could be earning money on existing housing stock. Waiting often backfires spectacularly, as opportunity after opportunity to make money slips through your fingers.
It’s worth noting, however, that the so-called “perfect deal” rarely exists. The market is very good at pricing the value of housing, meaning that the chances of making a killer investment are low – even for the best in the business. It’s better to go about making property investments on the basis of your own pre-existing analysis, rather than to constantly wait.
Assess the lie of the land
When investing in property, you’re not investing in it because you like it yourself or it “looks nice.” You’re investing in it because you want to make a return. That means you need to put yourself in the shoes of the people renting it. How much would they be willing to pay you every month to live in the property? Would what they’re paying be worth it for you?