Real estate means different things to different people. When most people think of real estate they think of buying their dream home and living there for the next 30 years. However, in recent years the idea of investing in real estate has taken off. One of the things that makes investing in real estate so great is that anyone can do it. You don’t need a license or a certificate to place an offer and get started. Perhaps you have a friend who has built a rental property portfolio or co-worker who flips houses on the side and are curious how you can join them. There are ample real estate investment opportunities if you know what you are doing. Here are four questions to help assess if you are ready for an investment property.
How much time can I dedicate to real estate?All over the country there are hundreds of part time real estate investors. The key is not only balancing your time but recognizing how much of it you have to offer. You don’t need a full-time schedule to get started but you had better know what you are getting into. Your availability will determine how and when you can view new listings, the type of deals to pursue, and just how hands-on you can be. On a part time schedule, you will rely on a real estate agent to help guide you through the process. When a new property becomes available you will need to rely on technology to help view and answer any questions you may have. You can do your homework at lunch, on breaks, at night, and on weekends but you had better be able to act quickly.
Do you have surplus capital to invest?Investing in real estate is slightly different than other investments you will make. When you purchase a stock or mutual fund you need all the money at the time of purchase. When you buy a piece of real estate you may only need 20-25% down payment to take full ownership. This type of leverage makes real estate a popular, and attractive, investing option. There is a difference in the funds needed depending on your investing goals. If you want to fix and flip you most likely need the entire purchase price plus repair costs in cash. There are ways to find these funds through secondary lenders but that takes some diligence. If you want to buy and rent the property you will need the 25% down payment plus any closing costs. Before you do anything, you need to assess just how much capital you have and how much you are comfortable investing.
What is your level of risk?All investments carry at least some level of risk. Real estate is seen as a safe investment because people always need a place to live. However, there are times when something unexpected comes up with the property or the market takes a major down turn. Like any other investment there is a possibility that your investment can take a loss. It is important that you measure just how much risk you are willing to take. Not every deal you are part of will be a home run. There are times when your projected return may not be as great as you think. Prior to making an offer or building a team you need to evaluate just how much risk you are comfortable with.
How much support do you have?Investing in real estate is truly a team effort. Even though you are investing individually you need the team around you to be successful. Everyone from your real estate agent to your contractor is an important piece of your team. If you are not comfortable in the beginning, you may consider taking on an experienced partner to help walk you through your first few deals. You should also make sure that your spouse is comfortable with real estate and that you have their support. Investing in real estate has its share of ups and downs and you will need the support of the people closest to you.
It is not hyperbole to say that just one investment property can change your financial situation for the better. Not only will can you enjoy monthly cash flow but your tenants will help pay down your loan balance and build appreciation. Investing in real estate is open to anyone with an interest and passion for the business. Are you ready to start investing in real estate?