What are the critical components of real estate investing?  Location3 immediately comes to mind; but there is more to it than that.  Location is extremely important, not just location within a particular area, the larger area itself is important. 

"I recently spoke with an investor friend from Utah who had been buying foreclosure properties in Detroit.  She was buying cookie cutter, 3 bed, 2 bath homes for $25-30,000 (an exceptional price).  Why are prices so low?  Is this a symptom of an area to stay away from?  I believe so.  If the little bit that I know about detroit is true; the economy is weak, the area is loosing jobs, and much of the industry is going oversea's."

I would say that there are two other "critical" components for successful investors.  Number two is buying well.  Most homeowners purchase the home that they like, and don't concern themselves with price nearly as much as an investor would.  Most homeowners that own their home for a reasonable period of time make a profit (even if they take out a home equity loan and loose the home....the loan was the profit).  As investors, we want to make the most of the situation, and we are picky about price.  Our goal is to "buy right", at wholesale prices if possible; we really make our money at the time of purchase, not upon sale.  The third component is both financial and emotional.  Real Estate investors who allow themselves to become over extended financially (such as financing down payment after down payment with a Visa Card) and those who become too emotionally involved (making the rental home look like a personal dream home, or thinking that a particular property is special) can loose the ability (or willingness) to make rational business decisions and can  find themselves in an un-tenable position.

1.  Location3
2.  Buy Right
3.  Business-not-emotion

Buy Right:  At the time of this writing (early 2009), the local market is suffering the effects of the national real estate turmoil, along with a recent building boom leaving us with too much housing inventory.  (Our commercial and Multi-family market has barely been phased)  Surprisingly, home prices for homes sold have dropped slightly for the first time this century, primarily due to the ongoing economic crisis.  I think that now is the time to buy right.   There are "in the market" deals that are very attractive, and there are distressed "below the market" deals out there.  Market conditions don't usually offer so many opportunities, and low interest rates only sweeten the deal; as a real estate investor this represents the opportunity of a lifetime.

* If you have the patience to listen to my opinion call me, I love to talk about this stuff, or you can read more....

Business not Emotion:

Stop watching "Flip That House"!!  I personally know of several investors who love the show, bought at the peak of the market (with credit cards), and are now very anxious to get out.  I consider most of these folks to be of the "get rich quick crowd", typically a very emotional and financially irresponsible group.  If your business plan has the words "get rich quick" in it, take out the word quick, and you will be fine.  There will be occasional deals that will make you lots of money quick (and I particularly like those), but being in the right place at the right time only happens every so often.  As I have learned thru experiance,  the real money is in consistently making good deals...and keeping emotions and unrealistic expectations in check.
 *I have flipped 35-40 properties in the past 5 years, and it is a valid investment strategy; however, our current market is not generally conducive to short term flips...for a number of reasons. 

Read more commentary by Phil at the Thurston County Post, a community and real estate blog.