Like the stock market, the real estate market is cyclical. There are good times when demand and prices soar, but there are also bad times when values ​​fall and demand falters, with periods in between.

It is very rare that the market offers perfect conditions for investing. Smart real estate investors know that the key to successful investing, no matter what the market does, is to do these four things.

1. Invest in income

Investing in real estate has many advantages. Tax benefits, appreciation in property values ​​over time, and leverage are a few, but none can outweigh the power of passive income.

Whether it comes from dividend payouts through a real estate investment trust (REIT) or rental income from rental property, passive income has incredible wealth-building power when held for the long term. , as rental rates and dividends often increase over time.

Buying properties or REITs that have strong income potential today with growth opportunities in the future means your returns are likely to compound over time. It also leaves you clear if values ​​temporarily dip because the investment objective is income first.

Other benefits such as growth should be considered as an added benefit, with income being the primary investment objective.

2. Buy discounts

Buying at market value isn’t bad, but a discount is definitely better. Value investing increases your chances of outperforming in the future and reduces risk during market volatility. Every market, regardless of conditions, always has discount buying opportunities.

Single-family homes are selling for the highest median price on record, with several hot markets like Austin, Boise or Pheonix considered overvalued. Commercial real estate (CRE) is not too far behind, with cap rates, a valuation measure used for CRE, steadily falling over the past few years, meaning that certain asset classes like multi-family and industrial are rather well valued. Instead of staying on the sidelines, smart investors know to buy discounts on the stock market, which currently has many REITs for sale. Prologis (PLD -1.87%) is an industrial REIT and one of the largest REITs by market capitalization, and is down 18% despite fantastic recent earnings and long-term growth ahead. Federal Real Estate Trust (FRT -1.78%) is another REIT that is down around 18% and has maintained an impressive record with 54 years of increasing dividends and a high-quality portfolio of outdoor shopping centres.

Savvy investors know how to find discount purchases and make sure they’re not paying too much for an investment. You may have to search a little harder for a bargain in high-priced markets with robust demand and active investor participation.

3. Evaluate carefully

There are so many factors to consider in an investment, such as current transactions, debt exposure, management, supply and demand, asset condition, potential income and growth opportunities. It is extremely important to take all of these factors into consideration before investing and carefully manage your numbers to ensure that the investment makes sense not just today, but in any market.

If you’re buying an investment in a period of strong growth, it’s easy to assume that things will stay the same. But demand changes, values ​​can drop, management can make bad choices, and tenants can fall behind on their rent. Unexpected things happen and savvy investors know how to plan and prepare for them when evaluating the investment in advance.

4. Hold for the long haul

Smart investors invest for the long term. They take a long-term approach to investing to maximize potential returns and investment benefits. It also means that their investments are not as sensitive to the ups and downs of market fluctuations because they have time ahead of them and can wait to sell when the market is favorable.

Don’t wait for the conditions to be perfect, they rarely are. Instead, follow these four simple but smart steps to help you get the most out of investing in any market.


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