FUNDAMENTALS FOR MORE SUSTAINABLE INVESTMENTS
I am often asked to show how to crunch numbers on properties. Indeed, the numbers need to work in order to have a property worthy of investment. As seasoned investors know however is there is much more to a property than one that looks good on a pro-forma. Look at your hardcore successful investors such as Warren Buffett, Ted Turner or John Malone. Do you think they are successful because they are better at crunching the numbers? Obviously not numbers are the numbers. What they do very well is understand what makes up a profitable and sustainable investment.
LETS TALK ABOUT “SAFE” INVESTMENTS
It is doubtful you heard it here first, but there is no such a thing as an “invulnerable investment.” Yet, let’s say it again; there are no such a thing as guarantees in any investment, and real estate is no different. Risk and investment has synonymous qualities in its very nature. What investors often refer to when using the term “safe” is the conservative investment elements of hard assets over time. What makes some investors feel hard assets, such as property, is “safer” is that the investor possesses an understanding of the investment, and is not implying there is some sort of guarantee of market conditions or over potential losses.
SERIOUS and seasoNed INVESTORS LOOK AT PROPERTY DIFFERENTLY
The largest landowners in the country crunch number the same as everyone. What they may do differently or perhaps better than the average person is understand why they invest in where they invest.
While the average person invests in their own backyard because that is where they feel most comfortable, seasoned investors feel most comfortable investing in locations that represent the best overall investments. They understand that within the national and global markets there are always fundamentals and economic drivers propelling real estate values forward. They look for the locations that have these strong fundamentals and economic drivers as they offer safer and stronger places to invest in.
Have you ever said the phrase or at least heard the expression, “Everything they touch turns to gold?” Indeed, it appears that some people just have that ability to make money from everything they do.
Interacting with hundreds of real estate investors each month, I see a definite distinction between the ones who score big and those who just make average (or perhaps poor) investments.
INVESTING LIKE THE SEASONED INVESTORS
So how do you have an attitude of success, how do you know when you make an investment that you will have a great one to cash in on? “Knowledge”, yes, good old fashioned knowledge gives you the confidence that you will cash in because you know your diligence tells you that you will.
As you think beyond the numbers and start looking at economic drivers and fundamentals of a market such as job growth, job diversity, population growth and undervalued markets (just to name a few) you cannot help but feel more confident making sound investment decision. If it works for the largest owners of real estate, it will work for you too.
THERE IS MORE TO AN INVESTMENT THAN CRUNCHING THE NUMBERS
Wise investors understand there is much more to investing in great properties than crunching the numbers to see if the returns match your desired outcome. In fact, savvy investors comprehend there is no need to crunch numbers on any property until they know the property is located in an economically sound location with fundamentals of the area that suggest sustainability.
Whoa! Did you catch the word location in there? Yes, we all know location is paramount to investing, but do you really know what best location means to the investor?
Market fundamentals and headlines
Reading headlines is a great way to learn about the fundamentals. I will always remember an article that I read awhile back which said “Construction of Toyota’s Plano Headquarters Set to Begin”
Within this article it says it will bring with it 4,000 jobs. What does this mean to you?
How the savvy investor interprets these articles
To the commercial industry it suggests there is opportunity to add more gas stations, strip malls and restaurants nearby as these services will be needed. Each of these service positions are in and of themselves additional jobs being brought into the area.
It suggests that people will be transferred into the area from elsewhere and as people go where the jobs are the population will grow. It may suggest a need for larger capacity schools. It suggests a need for more policemen and firemen and many infrastructure types of jobs.
When you allow your logical mind to open you will see that adding 4,000 new jobs to a location means much more than just opportunities to find work. It means exponential growth to the area. Indeed, to the knowledgeable investor it means a need for housing in the area. The location where this Toyota plant is being built suggests the path of progress for this city is growing in that direction.
Of course, following this mindset, you can identify the opposite. Such as when motor city left Detroit and moved south. That city is still trying to recover from the loss of jobs and population.
Related Resource: Get Cash Flow and Growth by watching TV or Reading the Paper
CASHING IN ON HEADLINES
Needless to say, you have much more diligence to do than just identifying these businesses that are moving in and out of an area. There are many headlines you can read that will have you take a pause and give thought as to what that may mean to you as a real estate investor. I trust this opens your mind to thinking in the same fashion as those who appear to be able to turn everything they touch into gold.
Informed investors understand that risk mitigation through diligence on LOCATIONS WITH ECONOMICS AND FUNDAMENTALS INCREASE THE ODDS OF SAFER AND MORE SUSTAINABLE INVESTMENTS.
The author’s opinion cannot be construed as tax or legal advice, and may not represent the views of HTBUSA or its stakeholders. HTBUSA is not a legal service or professional tax service. As with any investment, there is an inherent risk in investing in real estate.