Real Estate Trading

Real estate trading involves buying real estate with the intention of only holding it for a short period of time, in order to look to sell it later for a profit. Real estate trading is distinct from real estate investing in the same way that investing in stocks differs from trading stocks, where investing involves long term speculation and trading speculates during a shorter time frame.

Real estate trading is also known as flipping properties, with the flipping part designating the short period of time that a property is held, which can be as short as a month or two, although the time frame can be longer depending on the circumstances.

Real estate is not the most liquid of assets though and it generally takes a few months from the time real estate is put up for sale and when the sale is closed, and this can involve even longer periods of time in a lot of cases.

When people buy real estate, the intention when buying it is generally to use it for a certain purpose, to live in it, to use it for business purposes, or to rent or lease it, but with real estate trading, the intention is to make a profit from reselling it at some point in the near future.

Real Estate TradingSo, the properties that are traded aren’t used for any purpose other than to look to sell them fairly quickly, and there are indeed some opportunities that present themselves for one to do so. Some sellers do not have the luxury or waiting, in the case of someone who can’t make their mortgage payments, or those that need to move right away, or banks who just don’t want to bother waiting for a fair price for the property.

Others may need to renovate their homes but do not have the means to do so, even when renovations would be a profitable decision, where they may recoup more than the investment when sold.

The market may also be so hot that just buying and holding for a certain period of time may be expected to yield a good profit, once the costs of financing and other costs are deducted. This can all serve to make real estate trading quite appealing to many people, although one must be very careful when looking to profit this way, due to a number of risks involved.

The Appeal of Real Estate Trading

Real estate trading has been promoted as a money-making venture quite aggressively for quite some time now. This is not something that the average person is going to be all that knowledgeable about, but there are lots of people who are more than happy to provide a good amount of information for a fee.

The real estate promoting business is quite a vibrant one, and quite a bit of money has been made selling this information, and this remains one of the most popular schemes at least from the perspective of the promotors.

Unlike some money-making peddling, people do make money from real estate trading with the proper training, although some people lose money as well. In promoting the sale of this information, promotors are going to focus mostly on the positive and steer away from the darker side of these ventures, and you won’t see any testimonials from people who have lost their shirts on these deals, and have gone bankrupt.

This overly positive spin does work though, and all sorts of people have spent good money on courses in real estate trading, as they do with many things that promise a better lifestyle, and there is no shortage of that in the market for sure.

The reality is of course that there is no easy way to riches, and you certainly are not going to simply be able to buy someone’s secrets for a relatively small sum that will assure your success. Success in real estate trading can be achieved though in some cases anyway, provided that you are actually set up for success and that you have the desire and patience to see your plan through, as well as a healthy tolerance for risk.

There are plenty of success stories in the world of real estate trading, along with many stories of failure, and we need to be aware of the potential for both before we embark on this journey. The success that people do get with real estate trading also tends to be more modest than the promoters want you to believe.

This is how they attract people, to look to deliver on people’s dreams, although the dreams that one has need to be kept modest enough or one will just suffer disappointment. Success in real estate trading can be had, with the right amount of effort and skill and means along with a good amount of luck, which is exactly how success in any business works.

The Lack of Liqudity of Real Estate Trading

The potential for profitable real estate trading is certainly there, although there are a lot of risks involved, and this is a risky way to make money indeed. It is important to understand what these risks are prior to considering trading real estate.

A lot of the risks involved here stem from the sheer lack of liquidity of real estate purchases. You can’t just click your mouse and be out of the position like you can with securities, which would be the opposite, something that is very liquid.

Given that it can take months to even years to exit your position with a real estate trade, you have to be prepared to bear the risks that ensue, and this is exactly your edge here in these transactions.

One of the primary goals with real estate trading is to be able to bear the liquidity risk of the real estate transaction where the seller was not able or willing to do so. If someone is in a hurry to sell, whether that be through preference or necessity, this will mean that they will generally accept a lower price for the property.

You, on the other hand, are looking to be the person who pays the lower price, where a higher price probably could have been obtained if the seller was more patient, and you’re looking to provide that additional patience and profit from it.

Given that this is the case, you best be prepared to deliver on this additional patience, and more importantly, be able to handle the costs involved. Best case scenarios won’t do here, and this is what a lot of people focus on, what happens if everything comes together as planned. Sometimes it does, but sometimes it does not, and you have to be well prepared for both.

If You’re in The Capital Business, You Need Enough Access to Capital

Whether you’re looking to flip properties unimproved, to take advantage of better market timing, or whether you’re looking to improve properties to capture additional profit on these investments, you’re going to need to have access to enough capital to pull this off successfully.

The sellers often lack capital, and if you lack capital as well, you’re just setting yourself up for failure. These investments are leveraged, and you’re going to have to be able to keep them up, including making the payments on them in addition to the upkeep and taxes, if you want to come out of these real estate trades ahead and not behind.

Most individuals who trade real estate simply do not have the means to endure the swings against them, as this is done as a way to supplement their income and therefore they are of modest means as far as enduring losses goes.

By not having the means, by taking on more than you could chew so to speak, you can lose not only your investment but your other assets as well, so having the adequate means to take on the risks involved is not a nice to have, it’s a must have.

Even if you are investing a lot of sweat equity in these properties, meaning doing a lot of the renovations yourself and saving money that way, if you are underprepared to bear the costs of holding the properties over time, you’re simply putting yourself at too much risk.

Banks will generally lend out pretty conservatively, and it’s actually not that easy to qualify for additional mortgages, but there are alternative forms of financing out there with higher rates who are willing to take on more risk.

The higher rates should be a red flag for you though, as this means the cost of trading real estate will go up, and if a bank isn’t willing to take on the risk in a deal, this should have you at least carefully considering the fact that perhaps you should not either.

What You Really Need to Succeed Here

Experience is very important in any business venture, and real estate trading is not an exception. Starting out though, you will have none, so it’s even more important to learn everything you need to know about this business before you plunk down your money, and this means more than some promoters will be willing to tell you.

It is particularly important to research your real estate market so that you aren’t making wild guesses at how successful you will be in selling your property for a profit within a given time frame.

If things look good, you have to then find acceptable financing, both for the purchase price and the costs of managing and maintaining the property during the period of ownership. This includes being able to keep things together if it takes longer than you expected to sell it.

If things go well, you’ll be able to use the profits made from your first deals to further build your business, but it’s important to use these profits to reduce your risk, and not look to continue to leverage yourself to the max where you continue to rely on luck too much and may be left in a bad way when it ends.

Real estate trading requires quite a bit of research, access to a generous amount of capital, quite a bit of planning and skill, and more than a little patience to put yourself in a position where you may succeed. It is not something that you just pay a little money for and then become some sort of expert or wizard, and care must always be exercised here.

Monica

Editor, MarketReview.com

Monica uses a balanced approach to investment analysis, ensuring that we looking at the right things and not confined to a single and limiting theory which can lead us astray.

Contact Monica: [email protected]

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