Value creators are always searching for mispriced real estate assets where the intrinsic valuations are below current valuations creating inefficient markets. When searching for investment opportunities make sure you are doing these three things to uncover and see value that others don’t see.
When deciding to invest in real estate, make it professional by setting up an LLC. This will allow you to be protected as you may make. It will also give you tax issues.
1. Know current, intrinsic and future market values
You’ve got to have a very good understanding and grasp for valuations – many types of valuations. What’s the REAL value of an asset versus the perceived value?
If you’re trading baseball cards or basketball cards, and you are confronted by a seller of a card, you better know what that cards worth. If you’re an art dealer where you are buying and selling paintings, you better have a good understanding of painting valuations. If you buy and sell cars, you need to have a good understanding of car values.
Always get a good feel of the local values are like. Finding out who the average rental rates and whether they rent or own can tell you more about a home’s value than the neighborhood.
It’s the same thing with real estate – to see value, you must have a good understanding of what a properties currently worth based upon sound underwriting fundamentals.
Then, you need to understand the relationship between current value and intrinsic value so that you can forecast future values based on the gap in the valuation you uncover – real versus perceived value.
2. Know the trends
Stick with what you’re comfortable dealing with. You can have much more success at real estate investing if you focus on that market niche. Whether you specialize in flipping homes, only working with starters, or dealing in properties that cost low in the down payment department, stick with the things you are familiar with.
What’s going on in your marketplace? What’s going on with the local government? What businesses are coming and going? What stage is the economy in? What does your product type’s industry fundamentals look like? You need to have answers to these questions.
Having a good understanding of where things are now and where they are going will help you spot gaps in the market that offer value. Start reading local magazines and newspapers, regularly meet with real estate professionals such as brokers, property managers, lenders, and construction people and get their perspective on what’s going on and how they see things.
3. Know your investment strategy
Get to know others in real estate market. It’s a good idea to talk to other people and get advice they can give you if they are more experienced than you. It can be helpful to have contacts who know a lot about real estate. You can easily find like-minded people by looking online. Join a few forums and make an effort to meet some of the users.
Picking and becoming an expert at executing an investment strategy will help you see value and find gaps that offer value creation potential. Too many investors are chasing rabbits all over the place trying to find deals without having a strategy to follow.
Value investors have an investment strategy that they use, and look for deals that fit their strategy. Value investors know what they’re looking for. Knowing the type of rabbit you’re chasing will help you see value.
Researching and better learning valuations, your marketplace and your investment strategy will help you uncover and see value that other’s stumble by. These 3 things take time to learn and to become an expert, so be patient, but dig deep into these areas so that you become an expert at uncovering and seeing value.