How to double your profit in real estate
To make a profit in the real estate business, you’ll need to look at the big picture of the industry.
And the reality is that it’s not as straightforward as what’s portrayed on TV on popular fix-it then flip-it shows. If you want to be successful in real estate in the real world, you’ll need to focus on different factors.
It doesn’t matter how long you’ve been in real estate, you’ll know that there are still nuances that you’ll need to deal with to make things work in your favor.
Here are some of the things you need to know if you want to double your profit in real estate.
Learn about real estate cycles
As a general rule, land costs will increase over time. And anyone who’s been in the real estate business for 10 or more years will tell you that the value of land and property doesn’t increase in an orderly or predicable way.
Sometimes the value of real estate will spike significantly over a short period of time. Other times it rises gradually over a longer period. There are times when the price of property stays level. And there are times when property prices fall – either gradually over a period of time, or suddenly crash.
If history is in any indication, the overall picture of property and land prices is that it rises over time. So the increases outweigh the downswings. This is why many people choose property as a long term investment; they know over the course of many years that they are likely to make money.
Yes, you may need to ride through times when the market dips, but if you can continue to stay firm, then your faith will be rewarded (and repaid) when the market rises again.
That said, you might sometimes need to change your investment strategies to account for the cycles of the real estate market, especially if you want to realise your investment, or want to see a faster increase in its value.
For example, coastal properties are a good investment in certain areas in New Seabury as the varying landscape makes it a prime opportunity for development. An attractive golf community at the waterfront Nantucket Sound in Mashpee, it has exclusive feel and high-end amenities that residents will appreciate.
How to increase your margins
Want to increase your real estate margins? Here are some ideas to help you.
1) Market conditions
The first thing the best real estate financial experts do before purchasing a property is to consider the economic situation. Is it a buyers’ market or a sellers’ market?
A buyers’ market is when the cost of property has dropped and there’s a glut on the market. So basically there’s plenty of property to choose from, and it’s under-valued.
In a seller’s market the price of property is high, and there’s not much available. This ensures that buyers will be keen to secure a place that fits their needs, and expect to pay a premium for it.
Of course, this is a simplistic representation! There are many factors that can influence the favourability of the market for each party. But the fundamental takeaway here is that it’s important to be aware of what kind of market you’re entering. And if it’s not favourable to your position, it’s worth considering if it’s the right time or area to invest or sell.
2) Focus on higher buyer demographics
Every market has a ‘sweet spot’ – the perfect buyer or renter for a particular type of property. So it’s important to know who your ideal buyer or renter is, and plan your property accordingly.
Equally, when choosing a property to invest in, it’s important to consider who your end purchaser or renter will be – and ensure that you pick the right property and make improvements that will attract them.
And when planning your ideal buyer or renter, it’s worth pitching your property at the higher end – people who can afford and are happy to pay more. You’ll usually end up with larger margins, which means higher profits, if you’ve managed the process correctly.
3) Financing solutions
One of your top priorities when investing in real estate should be to find the best financing options.
A few tiny percent on an interest rate can make a significant difference to your profits. As can loan arrangement fees. So make sure you take the time to find a financial adviser you trust and ensure they give you a full picture of your options.
Then weigh each option, looking at all the associated costs, and considering the lifetime cost of the loan. A poor lending plan that can seem attractive at face value, can end up costing more in the long term.
4) Have an exit strategy
It’s easy to get caught up in the excitement of real estate investing, especially when starting out. But it’s important to have an exit strategy when going in.
What if you need to release money from your asset quickly? Or the market changes suddenly? Or what seemed like a solid long term investment starts to look less attractive? And what if you need to sell your property but can’t find a buyer?
It’s important to have a plan with any investment, but with property you need more than a plan A – you need a plan B and C too. Don’t leave all your financial eggs in one real estate basket… only to find that they’re stuck there when you need them most.
And if you rent out a property, it’s wise to have money saved to cover your monthly expenses for a period in case your tenant defaults on rent or suddenly leaves. It’s always better to be prepared.
5) Avoid thin deals
While there are certainly times when real estate markets make extraordinary turns, it is important to note that the shift from top to down is not that obvious, as there will be a flat trend in between swings.
In light of this, if you have a deal that spells out 15-20% returns, that tells you that if the market drops 15-20% you’re not going to lose money on the deal.
However, when you begin to make deals with returns of 5-10%, if the market even has a minor shift, you may be looking at some losses on the deal. That’s why it’s recommended to look for deals with significant returns. You may also want to try and negotiate for a price lower than what you would have paid in the past.
6) Prioritize types of repairs
When you’re looking for a home, a few things are normally more important than others. A decent kitchen, restroom, or a practical carport could have a significant difference in the amount you’re willing to pay. So if you’re the seller, you’ll need to remember this when you’re making enhancements to a property.
It may not be easy to turn a profit in the real estate market, but the tips above will help you get on the right track in achieving your goal. There will always be risks, so it helps to mitigate those risks and take advantage of what the market is telling you.