Many people confuse the terms residential real estate investor and speculator.
However, there are several key differences between the two, including: the time invested, the risk and reward expectations, the decision making process, and the emotional factors.
It is not about believing that one is better than the other is, but rather about understanding the differences, and deciding which the best path to take is.
Time Investment The difference in the time invested between a residential real estate Investor and a speculator can be summed up in two words: long and short.
The investor is in it for the long haul and is not looking to make a quick turnaround.
They understand that their profit is based more on averages than a quick upswing in the market.
Speculators, on the other hand, are looking for short-term investments and want to see a high yield in that time frame.
Risk for Reward Another key difference between an investor and a real estate speculator is in the risk they are willing to take for the reward they expect.
The investor is looking for a steady return for, at most, a moderate risk.
Generally, the investor is looking to play it safe.
On the other hand, the speculator is looking for a high yield and is willing to take a high risk to make that happen.
They are more of a gambler than the investor is.
Decision Making Decision-making can also help define the two.
The residential real estate investor tends to base decision on clear, defined parameters.
They know the market and understand the underlying factors that drive the market.
They also base their decision on the current conditions.
However, speculators tend to base their decisions more on tips and following trends.
They often speculate or guess that something is going to happen that will pay off big.
The Emotion Factors Emotions also play a more important role in the process for the speculator than they do the investor.
The speculator tends to go after the excitement of the next big thing.
It is just like gambling; it might be calculated, but it is still a gamble.
The residential investor, however, is going to base the decision on logic.
There's not major excitement, just a slow, steady pace that results on a solid return on investment.
So What? So why is it important to understand the difference between a residential real estate investor and a speculator? First, it is important to consider the risk factors and whether they are acceptable.
For some people, that's fine, but for others it is not.
Consider also the finances involved.
Taking risks is one thing if the capital is there, but risking money that isn't..
..
Well, that's just not sound business.
What then is the ultimate goal? If it is for the thrill and there's capital to invest, then becoming a speculator can be fun and potentially financially profitable.
Just keep in mind that it can also be financially disastrous.
If, on the other hand, the goal is to make a steady return on investment with minimal risk, then taking the approach of a residential real estate investor is the wiser move.
It may not be as thrilling, but the return is still there.