Real Estate Investing

Real estate investing is quite simple...in principle. Buy low and sell (or rent) high. When you boil it down there are four ways to make money in real estate investing:
1) Monthly cash flow;
2) Monthly paydown of principle on debt (a.k.a. amortization);
3) Tax savings (a.k.a. depreciation); and
4) Appreciation or a rise in the capital value of your real estate investment.

Astutely managing these four elements of return will determine whether you are successful in your real estate investing activities or not. Because real estate ownership is accessible to almost every adult the market for real estate is wide and deep and many feel it is the most egalitarian path to wealth. Many people try their hand at it but when you step over the boundary of homeownership into owning real estate to be used or bought by others you cross into territory that requires specialized knowledge to be successful. It is rare that particularly beginning investors can juggle these four elements correctly and have them operating harmoniously in their favor.

Most beginning investors are anxious to tap into the fourth quadrant on the list above, appreciation or capital gains. While this usually represents the largest component of return in any real estate investment most beginners get it wrong. Long term successful investors know that in order to benefit from appreciation they must be able to hold their investment through at least one business or economic cycle and weather changes in market conditions for real estate demand, financing availability, interest rates, inventory and the like. These investors focus on cash flow.

Good enough, but even experienced investors find it difficult to search for investments that have a positive cash flow from day one of their purchase. The problem is that most focus on what THEY like in real estate and are at best making educated guesses about what their potential tenants or buyers...their customers...are looking for in the long term. This is a strategic view that most small investors never develop...and it hurts them.

Begin with the end in mind. Know though thy customer...and you will succeed. To find out more click on the link in the introduction to this lens.