When looking to learn real estate investing techniques it can be difficult to know where to start. There are many different real estate investment strategies, real estate investment theories and they all have a role to play. Many people have differing opinions on the value of practical and theoretical experience with regards to real estate investing. The truth is that one very rarely works without the other.
Theoretical real estate investment
As they say “past performance is no guarantee of future results”. However, once you start to look at the theoretical side of real estate investment you will see that history does repeat itself time and time again. Looking back at historic real estate investment trends is extremely helpful, very educational. It can sometimes indicate the short, medium or long-term direction of a local, national of even international real estate market. Does this work every time?
If we look back at the 2008 US sub-prime market crash one of the main problems was the fact it was in many ways unprecedented. The last crash with any similarities occurred back in the deep depression of the 1930s. What very quickly became evident was the fact that the crash in the 1930s would not necessarily give as any indicators as to the potential recovery time of the 2008 crash. As a consequence, governments struggled to find a solution; central banks simply poured good money after bad into the system and more than a decade later government budgets are still struggling.
So, while there is a value to theoretical real estate investment, it does not always give us the answers.
Practical real estate investment
In a similar fashion to applying for a new job, many people place a great emphasis on practical experience as opposed to theoretical experience. Again, in reality they both have a place but opinions can vary widely.
One of the main benefits of practical real estate investment experience is the fact that you feel the emotions, you need to make a decision and it is your money at risk. Running facts and figures through a formula to work out theoretical returns is easy. The difference comes when you are investing real money, your money. One problem that many real estate investors face is that of knowing when to take a profit and when to cut their losses.
In the early days there can be a rush to bank your first profit when there may be potential for further profit in the longer term. On the flipside, egos can often get in the way when you are losing money on a property investment. When do you take a loss? Will it recover in the longer term? In many ways it is easier to take profit than it is to take a loss and effectively admit defeat.
That said there will never be a time when it is wrong to take a profit. If all of your investment deals were profitable then you would do very well in the long term!
Experience and theory
Experience of the real estate market, the real world if you like, and theoretical knowledge about what moves markets are both vital. The fact that we had no theoretical knowledge or practical experience to fall back on in the aftermath of the 2008 US real estate crash shows no system is perfect. Ironically, governments and central banks around the world would appear to have “learned their lessons” from the 2008 crash but time will tell…..after all, that’s what they all