Do You Really Want to Invest in Real Estate? 5 Questions You Must Ask Yourself

Posted on 14. Feb, 2011 by in General

You’ve heard that investing in real estate can be very lucrative -there are a large number of advantages to owning a piece of real estate. One of the best benefits is that when you buy real estate you are taking possession of something that is tangible; this can be a significant advantage when compared to other investments.

However, before you rush out and start buying up real estate, here are five questions to ask yourself.

1.  Is real estate investing a hobby or a business?

Firstly, ask yourself why you want to invest in real estate. Do you want another income stream or do you want to build equity?

Next determine how much time you have available to invest in real estate – are you working a full time job? Retired?  Factor in the amount of free time you have as this will have an impact of the hours you are able to commit to investing.

Real estate investing is a business, so you need to treat it like one. Running your business the right way can mean the difference betwen financial success and failure.

2. Are you going to be a landlord?

If you are, then you need to determine how much time you want to spend collecting rent, maintaining the property, making repairs, answering tenant calls late at night, etc. If you don’t like this idea, maybe you will decide to turn the property over to a reputable and experienced  property management company who can handle the tenants and maintenance for you? 

 If so, you need to determine who you will hire to manage your property and how much you will pay them. Typically a property management company will charge one months rent to locate a tenant and then charge 8%-10% of the monthly rent for collecting the rent and answering all calls from the tenant. You still need to set aside a reserve fund for maintenance.

3. Where are you going to get the money?

This is one of the biggest concerns of all real estate investors. Where and how to finance the deals.

Buying real estate will require some amount of your own money regardless of what the info-property guru-advertisements tell you.  Investing in real estate is not a “get rich quick” method to financial freedom.  It requires hardwork, commitment, and focus. There are certainly creative financing techniques available which may require less of your own money.  Regardless of what strategy you decide to employ, you will be parting with some of your  cash during the ownership of that property- so choose your investment and strategy carefully.  Another option for raising funds is to build relationships with other people who have money and are keen to invest in real estate -such as private lenders/Joint ventures partners.

4. Do you want cash flow (passive income) or chunks of cash? 

What is the reason you want to invest in real estate?  Monthly cash flow in your pocket? Chunks of disposable income? Or maybe both?  By finding out what you want out of real estate investing will determine what type of investing you want to get in to.

If you are looking for passive income in the form of cash flow (money in your pocket each and every month), then you may want to look into buy and hold, rent to own/becoming a property owner. Or you could become a private lender and work with investors to fund the deal.

If you are looking for chunks of cash, you have a couple of choices. Consider rehabbing (fixing and flipping) or wholesaling. 

5. How do you plan to learn more about RE investing?

The most successful real estate investors are those who keep up with the changes in the industry and are constantly learning new techniques.

One of the best things you can do is find a local mentor, someone who is making money investing in your local market and in the area that you are interested in (for example if you are interested in commercial real estate investing, then don’t find a mentor who invests in single family homes!)

 To succeed in real estate, you need to learn continuously. It is very important that you take time to study and keep up to date with current trends, legislation and financing.

Real Estate investing can be very lucrative. Take the time to answer these questions before you start – then go ahead, create a plan, continue to educate yourself, and take action on the path to your financial freedom.

To your investing success!

Richard & Jane

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