Investing in real estate can be one of the best ways an individual can attain wealth. Unfortunately, most people want to try and achieve this in a very short period of time. Many of the TV shows and infomercials in the last decade have been geared toward selling people on this idea, particularly in the foreclosure and home flipping areas of real estate. The fact of the matter is that most people simply do not know how to invest in real estate successfully. Successful investing in real estate requires a long term plan.The most successful investors, who have had the longest staying power, never focus on short term profits. Their approach to real estate is similar to how Warren Buffett invests in the stock market. They look for opportunities that are available at a low price, and then determine how they can add value to that opportunity. There are many ways that this can be done. One of the most profitable ways to invest in real estate is to invest in development land. This is also the most difficult way, as it involves the most risk, and requires the most patience and foresight. Development land requires a bit of a vision, and substantial knowledge of the market. One example of a very profitable land development that I am familiar with involved land that had previously been owned by a church and was zoned agricultural. The developers had the knowledge that a local road was to be extended through adjacent to this property, and that it would result in a signaled intersection where there would be increased traffic. The developers obtained the land, had it rezoned commercial and developed a shopping center with outparcels on the site. They had paid just over $200,000 for the land, and some 15 years later, sold the improved property for over $17 million. In recent years we have seen many examples of failed land developments, particularly in the residential land market. Many of the national homebuilders were willing to pay significant premiums for land available with approvals. As a result, many inexperienced land developers joined the crowd, and were left holding the bag when the residential market collapsed. The long term, local homebuilders who were always smart enough to buy land at bargain prices, and THEN obtain approvals, were the developers left standing. Other investors look to buy improved properties, such as multi-family properties, offices, industrial buildings, shopping centers or hotels, and seek to add value where possible. They look to buy bargain properties that made need some renovation, complete those renovations, and then lease them out at higher rental rates. They do this one at a time, and build a portfolio by completing one project, lease it up, and then pull the equity out and put it into the next project. Typically, they will start out doing about one project each year, or every other year, until the size of their business grows. The bottom line is that investing in real estate requires a long term view and it should also be approached as a business. Most investors want to try and get rich quick in this endeavor, but there are few who have actually done so. With that in mind, it is a good idea for any investor interested to learn the ropes on how to invest in real estate before investing significant money in this undertaking.
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