Quote:
Originally Posted by mikidi-kikidi
how much of REI is understanding the entire business/general entrepreneurship as opposed to understanding/valuating a specific city or area? Or a specific country/legislation/taxation? How contextual is it?
This is a really smart question. Real estate investing requires expertise in many complex areas of finance, tax law, landlord tenant law, property management, negotiations, investor relations, construction, zoning and land use, contract law, debt collections laws, and probably a lot more areas that aren't coming to me at the moment. It's an area of skills that you develop over a lifetime of investing because you can go extremely deep in any one of those skillsets. But success in REI requires some knowledge of them all.
I think that there are levels here though, from the micro to the macro. I'll take a crack at the necessary conditions for success, going from most micro to most macro, but i'd love to hear other perspectives on this as well.
Self - Entrepreneurial, hard working, meticulous, comfortable with risk.
Property - Offers a good investment for a strategy where you have expertise
Neighborhood - Demographically stable, no structural issues (e.g., prone to earth quakes or flooding or erosion)
City - Has a reasonable process and rules for zoning and regulation of investors and tenants, works to attract new businesses
State - Has a reasonable approach to landlord tenant laws, works to attract new businesses, low taxes
Nation - Stable currency, predictable monetary policy, low taxes, reasonable tax laws
Economy - Stable interest rates
Many of these any particular investor has no control over at all, and any one of them could have an enormous impact on your investment. It was, for example, an investor apocalypse when President Reagan signed the 1986 tax reform laws that removed the ability for investors to own real estate as a tax shelter. That change caused 20%+ price drops in many markets.