Friday, February 14, 2025
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Real Estate Investing Should Be Business, Not Personal

There is money to be made in real estate. That is nothing new. Historically, real estate has been one of the most reliable and attractive investments around. But it comes with a trap: making investments personal rather than maintaining a business state of mind. Getting personally involved with individual investments can lead to big problems.

Some experts describe this problem as ‘falling in love’ with a property rather than its ability to generate a profit. It applies equally to both commercial and residential real estate. Regardless, falling in love with a property can end up costing an investor dearly. At the very least, it could rob the investor of some of his profit. In a worst-case scenario, it could lead to taking a loss on the investment.

Confidence Remains High

Confidence in the real estate market has been high for the last several years. It remains high as we turn the page on an old administration and embrace the new. More importantly, confidence has been stable for more than a decade.

Over the last twelve years, fewer than 10% of all property investors have consistently held a negative view of real estate profitability. On average, 75% have viewed profitability as either good or excellent. In 2022, more than 80% had a positive view of real estate profitability.

That kind of confidence breeds new investments. Existing investors continue to look for opportunities while others, on the outside looking in, decide it is time to jump into real estate. So even after a slight downturn in 2023, confidence reemerged the following year with more new investors getting involved. The prospects for 2025 look good.

Treating It as a Business

There are three types of direct-involvement investment strategies for real estate, meaning purchasing property yourself and then using it in whatever way you deem most appropriate. Direct-involvement investing is not investing in property funds and other similar tools.

Here are your three options:

Long-Term Hold – The long-term hold option is based on purchasing commercial real estate and holding it in your portfolio for a minimum of 5-10 years. You collect rent while the value of the property increases.

Mid-Term Hold – The mid-term hold strategy is based on buying properties and holding them for up to 5 years. You hold them just long enough to pay off your financing and achieve the desired level of profit. Then you sell.

Short-Term Hold – Short-term hold is essentially fix-and-flip. We most often associate fix-and-flip with residential property, but there are investors who do the same thing with commercial properties. The idea is to rehab a distressed property and get it back on the market in months.

Regardless of the strategy an investor might choose, acquiring and servicing properties is a form of business. Property is the product of that business – whether it is rented or put back on the market for sale.

Financing the Business

Treating real estate investments as a business is crucial on many levels. At the very top are the implications of financing. Consider an investor who works with Salt Lake City’s Actium Partners to finance a new acquisition. That investor must make sure he keeps his financial house in order to make everything work.

His financing is set in stone. So if there are any cost overruns created by the mistake of falling in love with the property, the money comes out of his profit. He still needs to pay Actium what he owes.

Treating property investments as a business helps investors avoid developing personal attachments. And when an investor can do that, he is more likely to maximize profit.

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