The potential to become a money spinner
With the advent of the economic difficulties that most major economies have faced in the world, it is not entirely surprising that real estate investing is being approached with some caution in terms of its potential to be a means for earning a living. I for one still believe in the sector because it has sustained the wealth of many people across centuries such that some young people today are still living off the real estate investing that was carried out few centuries ago.
However in order to make a profit from real estate investing, the person joining the industry has to follow some rules otherwise they should be prepared to make significant losses. If you play your cards right, the rewards can be spectacular but likewise if you go about your business in a perfunctory manner then the losses will also be equally spectacular.
Knowing the value within your business
If you do not know the parts of your business that create value or property then you are not running an effective real estate investing group. There will be certain parts of the business that will continuously make losses but if you know of other areas which consistently make a profit then you might decide that it is definitely worth the risk to concentrate on the areas that make a profit to the detriment of those that don’t.
You might also decide to keep both parts of the business on the basis that the ones that make the profits will more than make up for the losses in other parts of the business. This is a pragmatic approach but if it is not taken with care, you might end up holding onto to inefficient assets which add nothing to the equity within your businesses.
The salient point that I am making in this article is that it does not matter whether some areas of your business appear to be outperforming others in a very significant way. You may be able to get away with a loss leader strategy as long as you completely understand what is going on in your business.
It is always important to make a proper distinction between short term goals and long term investment objectives. Beware of schemes that offer cash in the short term but end up seriously hurting your long term prospects. You also need to be wary of long term schemes that promise to deliver in the future but bleed your real estate investing business to death in the short term.
If your business has fallen, all the profits that could have accrued will not be available to you so you have to ensure that you are not ignoring the need for the short term survival of your business. This theory was bought into focus by the collapse of the subprime property market. Those real estate investing operators who concentrated on short term goals ending up losing quite a lot of money while those on long term goals had to wait even longer for their returns to materialize.