Basic Principles in Real Estate Investing

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(Free-Press-Release.com) October 16, 2009 -- Buying Right

A famous real estate developer, Howard Johnson, had a saying: “bought right is half sold”. This saying refers to price….however another dimension of value is also of existence. If you didn’t know yet, once a property is bought at the correct price, this means that a room to make mistakes for the difference between sales price and cost is present. This happens when you do the work yourself and when you’re doing it well. The term “work” here means remodeling, financing, leasing, etc. If you have more margin, real estate will be forgiving with your mistakes. But in case you don’t have the basic experience and know-how about where to begin, then “positioning” should be applied. This means: “location, location, location”. And the physical location is just one of the aspects of positioning. Aside from positioning, there’s also function, use and perception.

Sharks’ Teeth

Let me use an analogy here. As everybody knows, a shark’s teeth has several rows. It really doesn’t mean much when it loses a teeth or two because there are several others that can still do the job well. This principle is very much the same with real estate investing. Many of the commercial and residential landlords unknowingly make a mistake by thinking that their work is over once they have a tenant residing at their property. They focus so much on outright sale and getting a cash event that they don’t realize that having a cash flow is the real name of the game. When a landlord focuses on cash events, it’s like putting his resources in one basket. Most successful investors do otherwise by focusing on cash flow that is why they can get others to pay for their day to day lifestyle expenses. And the others I am speaking of here are the tenants. The cash flow will let you redirect your focus on those cash dealings like flipping, eventually. If your need for cash has to be taken care of, you will not have to worry when a flip property would have to take three additional months just to close.

Moving the fulcrum
A fulcrum is a device that can multiply the mechanical force applied to an object. The same principle of “mechanical advantage” applies when you get the proper financing for your real estate investments. By simply moving the rate/terms (fulcrum), in other words, for every dollar saved on the rate, that is equivalent to twelve dollars EARNED per year in profit. This is a very critical subject for anyone who is new in investing.

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