Monthly Archives: September 2016

Short Term Investor

The world of real estate investing can certainly seem like a vast one full of many different types of projects and opportunities. That can certainly be true, but by asking yourself the key question of what kind of investor you want to be, you can cut through a lot of that material and focus on the activity that you will not only benefit most from, but will enjoy the most as well.

Asking yourself whether you are a short or long term real estate investor will go a long way towards determining the types of project you should spend your time pursuing and the kind of information you should be soaking up from as many sources as possible. For those that answer the question as short term, your primary purpose is to buy low and sell high, no matter how you get there. There are two main ways.

Put A Home Through Rehab
Perhaps the most common way to take a low-sale price home and convert it into a higher sale price home is through renovations on the property that add real value to the piece of real estate. You’ve no doubt heard of flipping homes or renovating homes and this is where those types of investors put their resources.

The draw for this type of investment just like any short-term investment is the prospect for a quick payoff. Indeed that can be the case but those pondering a pursuit of fixer-upper properties should keep in mind that it takes time and experience to get through a real estate transaction efficiently and first time real estate investors can be overwhelmed by the renovation experience.

The key goal here is to find properties that have the potential to sell for far more than their renovations might cost. That search is being done right now by hundreds of real estate investors in your area, so pinpointing the best opportunities can often be a difficult, competitive pursuit. It may be a good idea to partner up with a seasoned investor on a few transactions before setting out on your own to get the hang of renovations and the homes that are best suited for that kind of investment.

Find A Gem
Many real estate investors skip the renovation portion of the process all together and focus on properties that are undervalued on the market and could be resold almost immediately at a higher price. Obviously, these properties can be more difficult to find and the risk involved is usually higher because undervalued homes are usually undervalued for a reason.

One demographic that finds this type of investment particularly attractive is made up of committed real estate investors that also have a license to buy and sell real estate. One of the key barriers to reselling a home is the expense entailed in real estate commissions on both the purchase and sale of the property. For those that act as their own realtor, that cost goes away and the prospect of a profit increases greatly.

SUCCESS CONTAINS VALUABLE LESSONS

Malcolm Gladwell wrote Outliers in 2008. It is as relevant today as it was then. Real estate agents, brokers, and managers could all profit from reading it. Gladwell, the author of Blink and Tipping Point, has subtitled this work “The Story of Success”, and what he has to say about the topic both shatters some old myths and also provides us with a better understanding of how success comes about.

One of the most memorable chapters in the book is titled “The 10,000-Hour Rule”. Its point could be expressed this way: No matter how much talent and native genius you have, to become a success you have to pay your dues. Gladwell considers a number of cases of people who might be thought of as “world-class” geniuses. He points out that “the closer psychologists look at the careers of the gifted, the smaller the role innate talent seems to play and the bigger the role preparation seems to play.”

The author discusses “Exhibit A” in the study of talent, a 1990s study of violin students at Berlin’s elite Academy of Music. Now, all of the people at the school were very talented. But even among the very talented, there are differences in performance ability. With the help of faculty at the school, researchers grouped the violin students into three cohorts. At the very top were those who had been identified as having the potential to become world-class soloists. What the researchers found was this, “the thing that distinguishes one performer from another is how hard he or she works. That’s it. And what’s more, the people at the very top don’t work just harder or even much harder than everyone else. They work much, much harder.”

The title of the chapter derives from this fact: “…researchers have settled on what they believe is the magic number of true expertise: ten thousand hours.” “‘The emerging picture… is that ten thousand hours of practice is required to achieve the level of mastery associated with being a world-class expert — in anything,’ writes the neurologist Daniel Levitin. ‘In study after study, of composers, basketball players, fiction writers, ice skaters, concert pianists … what have you, this number comes up again and again.'”

Does all this have meaning for an aspiring real estate agent? I think so. To be sure, we may not have a standard for measuring a “world-class” real estate agent, and the idea of “practice” does not straightforwardly translate from fields like music and sports to the skills an agent needs to hone. Nonetheless, the general point can be applied. Do you want to become a successful agent? Practice. A lot. Talk to people about real estate. Do open houses. Become totally familiar with available inventory, financing options, and applicable laws. If you don’t have transactions, create hypothetical scenarios and write the contracts and do the math. (The role that brokers and managers can play in this should be obvious.) Maybe you won’t need to do this for ten thousand hours. Maybe it would be satisfactory to be very good, if not world class. What about five thousand hours? Or three? Or two? Whatever it is, success is not likely to come overnight or without work.