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Real Estate Investment Tips

By Tabitha Naylor

The real estate industry can be a very lucrative business provided that the real estate investor makes the right investment decisions. In Southern California, for example, the market is quite different from other regions. For a long time, the Southern California real estate market has been identified as being expensive, volatile and above all, prone to foreclosures. Despite all of these challenges, the potential to make a profit in this market is relatively high.

For any ambitious real estate investor who wants to escape potential financial disaster and survive in a rather volatile South California market, he or she should keep the following real estate investment tips in mind.

Monitor Your Expenditure

The Southern California real estate market is very expensive. Real estate investors may have a tendency to focus all of their finances into one particular investment. Although It might sound like a cliche, the old saying 'Don't put all your eggs in one basket' does apply in this context. Spending all your money on one investment is very risky. As an investor, you should set a strict budget for each property and set aside a contingency fund. A contingency fund is crucial because there are always unplanned expenses when you invest in a property. Timelines can get extended meaning you have to make more monthly mortgage payments than expected before you can take on tenants, or resell the property. Renovations may cost more than you estimated in terms of materials or labor. Other changes may take the form of increased interest rates, or a reduction in property value before your project is completed. All these changes require some sort of financing. It is therefore crucial to establish a healthy contingency fund.

Location is Vital

Any real estate investor will attest to the fact that when it comes to property investment, location is critical. There is no substitute for buying a property in a good location, or a location on the upswing to increase your property value, facilitate a quick sale, or to attract new tenants. In Southern California, there are many great locations for investors to consider. Location can often be the deciding factor in whether a deal is profitable, or not. An investor who wishes to maximize his or her returns should ensure that the location of the property is in a desirable location.

Avoid Purchasing Pro Forma

The term pro forma stands for 'prediction.' As a real estate investor in competitive market, there is no point in purchasing an investment property based on predictions. Since the future is filled with uncertainties, it is important to make your investment decisions now in contrast to basing them on future occurrences. A successful real estate investor should not purchase any investment property based upon the fact that one day; he or she expects the property to be worth something.

Owning More Properties Does Not Always Equal Success

A number of real estate investors around the world have a tendency to think that the more property they own, the better. They believe that owning more property is the best way forward. On the contrary, this is not the case. There is a lot more to purchasing real estate property than just accumulating properties. Each property you invest in must provide a profit. A big mistake many investors make is to purchase a property without crunching all the numbers. The cost of the building, including repairs, operating expenses, taxes, mortgage interest rates etc. must all be taken into consideration against the number of tenants and monthly cash flow the building can generate. If you are planning to flip or resell the property then you have to be absolutely certain the bottom price you are willing to accept is achievable in the current market and will still net you a profit. If the numbers don't add up don't invest!

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