8 Rules to Live by as You Take Advantage of This Long Awaited Upswing
The housing market is finally showing signs of a sustained recovery after several years of sharp declines in home prices and construction. At the end of 2011 the market was down 33% from the peak of mid 2006, but financial experts say it began rising in 2012 and will climb still more in 2013; many believe we can expect an even bigger return in average appreciation over the next ten years.
So, what lessons can new and veteran real estate investors alike retain from the last up cycle? Here are 8 strategies to invest smarter, avoid costly mistakes or unforeseen snags, and build wealth during this long awaited upswing.
- Though it may seem counter intuitive, don’t buy a residence! Get your investment business well in hand so that your income from that can cover your own home residence, thereby avoiding costly overhead that could be used to invest and build wealth.
- Be financially conscientious despite the overnight abundance of wealth that has blessed your bank account. Contrary to popular belief, lavish spending is not needed to attract more money. Dave Ramsey, financial consultant, says, “The wealthy person who is ruled by his stuff is not any more free than the debt-ridden consumer…. stuff is wonderful; get some stuff, but don’t let the pursuit of wealth become your god”
- Avoid fixed overhead as much as possible; it can suffocate your business and trip you up as you try to scale up and down with the market shifts.
- Always have a liquid cash emergency back up fund. Thousands of real estate investors lost everything and went bankrupt when the bubble burst. Failing to plan for the unknown was likely even one of the biggest contributors to the bubble in the first place. It is absolutely imperative that you build up a reserve fund and create continuity in your business structure.
- Mix it up! Diversify your property types, price range and locations because the real estate market is continually ebbing and flowing; your best defense is diversity. Hot today might be NOT tomorrow, so spread yourself around.
- Don’t get caught with your pants down by leveraging too heavily. Make sure your LTV (loan to value ratio) is low, even if you’re planning to flip in the medium term. You might get a rush from the beauty of leverage, but the risk is way too big a price to pay. You’re in it to win it, not gamble.
- Embrace opportunity and grow quickly. Yes, growing too fast can be risky, but many wizened investors lament that they did not take advantage of the last boom and build up their volume when they had the chance.
- Don’t make careless acquisitions. Buy fast, but buy smart; there are infinite opportunities out there and while you want to take advantage of this upswing for the next decade, you want to do it wisely. Quick and methodical is the key.