The Real Estate Game: Hedge Your Bets in the Right Ways

Posted by Staff Reporter on Sep 26, 2017 10:36 AM EDT
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The Real Estate Game: Hedge Your Bets in the Right Ways

Despite the economic crash of 2008, real estate has remained a solid investment opportunity. Even though house prices plummeted and banks virtually stopped handing out loans for a short period, the housing market has and likely always will be the place to put your money. In fact, according to a survey conducted by, 27% of Americans believe that real estate is the best way to store money you don't need right now. Polling the opinions of 1,000 adults, the financial website found that those who were happy to tie their funds up for a decade saw real estate as the best option ahead of cash investments (23%). Moreover, among those aged between 30 and 49, 32% favored real estate over options such as bonds, the stock market, and precious metals.

With real estate being one of the best investments you can make, it stands to reason that you need to know what you're doing if you're going to enter the market. Indeed, despite the majority of people understanding the value of property, very few know how to actually get the most out of it. As a complement to its survey findings, Bankrate asked full-time investors to identify the most common mistakes they see among aspiring real estate moguls. Among the list were issues such as paying too much, assuming it's an easy way to get rich quick and not planning ahead. Beyond these issues, most novices also lack the technical knowledge when it comes to construction. As we've outlined in the past, all good properties must have a solid foundation and, because of this, you need to know how to spot an unstable structure.

Fix and Flip with a Strategy

These are the sorts of questions you have to ask if you're going to get into the property game. If you can start to put all of these pieces of the puzzle together, then it's time to start thinking about investing your money and, importantly, the ways in which you'll do it. As you'd expect, there are a variety of investment strategies and we can't go through them all right now. However, there is one simple way to get in on the action and, potentially, see a healthy return on your investment. Perhaps the most popular and recognizable strategy is flipping. In simple terms, you find an inexpensive property that needs work doing to it, you make it look pretty and you sell it for a profit in a short period of time. Naturally, the reality is never a simple as that.

Unfortunately, many people's perception of buying a property comes from the ever popular game Monopoly and that means they can simply buy, buy, buy and then sell, sell, sell with ease. However, without a strategy, you'll quickly blow your bankroll in the same way a novice bettor would. In fact, it actually helps to think of flipping like a game of blackjack. While it's possible to put your money down and play, successful bettors will analyze the numbers. A hit and stand strategy in blackjack, according to online sources, is based on multiple variables. In addition to the value of your own hand, you have to assess the dealer's up card and then work out your best move based on the mathematical expectation of standing vs. hitting (taking a new card). This is the same processes you have to go through in a fix and flip investment strategy. Let's assume you've been given a loan by Wells Fargo or Citigroup. This is your stake and you find a property that's within budget.

Real Estate Investment Isn't a Lottery

Like a blackjack player, you could put your money down and hope the cards fall in your favor. However, this is a recipe for disaster as you're simply relying on luck. Smart investors will size up variables such as the potential renovation costs, sale potential and any extraneous market factors that could affect the value of your investment. Even if you get this part of the equation correct, you then have to do it all again on your next investment. Fix and flip is a long-term strategy where you need to squeeze out a profit over the course of multiple investments. Indeed, you can't go into this process assuming you're going to fix and flip one property and hit the jackpot. Again, if we go back to our gaming analogy, when you buy Mega Millions tickets and turn on ABC's WSB-TV, you know the odds are against you. Sure, there's a chance you're going to hit the jackpot, but it's a slim chance. The odds are just as slim, if not slimmer, when you're investing in property. Yes, you could find a dilapidated goldmine and turn it into a mansion but it's highly unlikely. Because of this, you need to study the variables, run the numbers and gradually increase your stake in a bid to rake in ever-increasing profits. Real estate might not be a game, but you can treat it like one if it's the right game.

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