Great fortunes can be made and lost in real estate. Speculators are generally prepared to take on more risk and usually have a short-term strategy. Investors tend to have a long-term approach, which tends to minimize the risk. Successful real estate investing requires working with a professional Realtor and Home Loan Specialist that are committed, qualified and equipped to help you implement the seven keys to profitable real estate investment.
Key 1 - Determine Level of Liquidity 
Liquidity is the ability to quickly convert an investment into cash, without losing the principal that you invested. A savings account is highly liquid, where in contrast, real estate isn't very liquid due to the time it takes to sell the property and the unpredictability of the market at the time you are ready to sell. Great real estate fortunes have been lost by those that over-extended themselves and didn't have enough liquidity (cash flow) to weather the storm during downturns. A professional Realtor and Home Loan Specialist can help you implement strategies to maintain adequate levels of liquidity to be able to handle the ups and downs and take advantage of profitable investment opportunities.
Key 2 - Determine Level of Marketability
Marketability is the ability to convert an investment into cash quickly, at any price. Stocks are very marketable because they can be sold at any time at the prevailing market value. The stock can produce a loss, but can be converted quickly into cash. Real estate not only requires dealing with market conditions, but also has real hard costs to consider, i.e. real estate commisssions, title insurance, State or County recording or Stamp fees, etc. A professional Realtor and Home Loan Specialist can help you invest with a business plan and abate the marketability risks associated with owning real estate as an investment.
Key 3 - Determine the Impact of Leverage 
Leverage is the use of borrowed funds to finance part of the purchase of an investment. The ratio of borrowed funds to the purchase price is known as the loan-to-value (LTV) ratio. A high LTV results in high leverage and a low LTV results in low leverage. Typically, real estate investments can be leveraged higher than most other types of investments. Mortgage debt can result in "positive leverage" and can enhance your rate of return on an investment. Other times, mortgage debt can result in "negative leverage". In these cases, mortgage debt should be minimized, avoided, or you should look to sell the investment.
Key 4 - Evaluate the Investment Management Issues
There are really two levels of monitoring and managing a real estate investment:
1. Asset Management - This involves monitoring the financial performance of the investment and making changes as necessary.
2. Property Management - This involves the day-to-day operation of the property and the physical maintenance of the property. It may include rent collection, paying taxes, insurance and utilities, exterior maintenance such as landscaping, parking lots, roof issues, interior issues including plumbing, electrical, painting, flooring or even trash removal. Property management can become a huge trap for your money and your time if not given proper consideration before purchasing. You should seriously consider engaging in a professional relationship with a property management company, unless you want to fix leaky toilets and get calls from tenants at all hours of the day and night. A professional Realtor can help you in this area.
Key 5 - 
Consider the Tax Impact of Your Investment
This includes such issues as Classification of passive, active or portfolio income and losses, Capital Gains taxes, Income taxes, tax credits, tax deferments or even tax deductions. A CPA professional is best equipped to to help you determine the tax implications of your real estate investment. A qualified professional Realtor and Home Loan Specialist can also work with your CPA in determining the best tax strategies and opportunities for your situation.
Key 6 - Evaluate and Reduce Investment Risk
Risk is the possibility of losing either the principal invested and/or the potential income from the investment. By working with a qualified professional Realtor and Home Loan Specialist you can reduce your risk in several ways. The first is Risk Analysis, which is the process of evaluating alternative investments based on the level of risk you are willing to assume. Risk analysis can be done using industry accepted rates of return and allowances for risk. Each investor has a different tolerance for risk based on their tax status, their capacity for leverage and their personal financial situation. For example, if you can earn 15% per year on an investment with a tenant who signs a 5 year lease, versus 20% per year with a tenant who signs a 2 year lease, is it worth the extra risk of not having a tenant after 2 years for the additional rate of return?
Key 7 - 
Investing with the Right Entity
A qualified professional Realtor and Home Loan Specialist can work with your Real Estate Attorney and CPA to help decide the best structure to hold title to your real estate investment, such as LLCs. Partnerships and Corporations to limit losses to your initial capital contribution and personal liability.
Always remember the golden rule of investing ... "Diversification". Investing in multiple investment properties with varying levels of risk reduces the chance that all the investments will be affected by the same turn of events. By keeping all your real estate equity in your primary residence, you are not diversifying your real estate portfolio. However, if you spread your real estate equity and investment dollars over multiple properties, you would be hedging your real estate risk and diversifying your portfolio.
So, I ask you once again, "Are you a Speculator or an Investor?" If you're a Specualator, let me know how that works out for you. If you're an Investor, don't leave home without your qualified professional Realtor and Home Loan Specialist.
Harvey Collier - Florida Home Loan Specialist - Primary Residential Mortgage - Visit my website -
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