One of the oldest and proven truths in the world of investment is people get very reckless when they feel making money is easy and very cautious when opportunities abound. Take the 2008-2009 stock market crash. Before the crash, instead of being very cautious due to flashing signals about an impending real estate and banking crash, people were eagerly flipping homes like it was going out of style. During the crash, instead of quickly gobbling up tons of industry leading solid companies, investors took to the sidelines.
This truth applies not just to the stock market but can tell us a lot about the proper way to handle risk in the real estate market as well. In other words, know when to be greedy and know when to play it safe. When it comes to approaching hyped up and flashy real estate development schemes, you have to really keep your greed in check until you get enough facts because the chances of getting burned by a bum deal is quite high.
Follow these tips to help you avoid flashy real estate development deals that may eventually yield headaches and losses instead of profits.
Separating Hype From Reality
The biggest source of hype for many real estate developments is not some glossy brochure or snazzy website. No, the biggest source of hype, and subconscious peer pressure, are from other investors. Whether from among your close group of friends or from the pages of the blog of a real estate investor you respect greatly, many people’s emotions, best wishes, and hype can sway you into making a bad decision. The solution to all this is to focus on the numbers of the investment. Do they, standing alone, make sense? Separate the hype and sales talk you get from friends and real estate ‘gurus’. Instead, focus your decision solely from the numbers.
Look At Area Growth Trends
One of the most solid pieces of information you can use to gauge whether a much hyped real estate investment ‘opportunity’ is worth investing in is the actual growth trends of the area in question. Is it growing? Which parts? Where do the people come from? What is the migration rate? How long do they stay? You have to keep these pieces of information in mind and make sure they produce a picture of a sustainable growth rate. Think ahead 20 years when making growth trend-related decisions.
Look at Fundamental Economic Factors
Look at the employment base of the area you are considering. Is it evolving into obsolescence or are new leading edge or stable companies growing in the area? Furthermore, look at the published long-term development plans released by county and municipal authorities. Do they support real estate investment or are areas going to be rendered worthless by environmental zoning decisions?