With all the reality shows on tv, many of us are dreaming of making it big through real estate investment. But the reality is, investing in real estate is not as simple as it looks.
Real estate investing. With all the reality shows on tv, many of us are dreaming of making it big through real estate investment. But the reality is, investing in real estate is not as simple as it looks. Real estate transactions have numerous legal restrictions and requirements. You will also need to deal with different people for different aspects of the transactions, all with vested interest.
Before you go out and buy your first investment property, take the time to ask yourself the following questions.
1. Do you have any capital?
Many would have you believe that you can invest in real estate with absolutely no money. That is not true. Real estate investing requires money. The amount will vary on the type of deal and the type of financing you get. If you are investing with someone elses money, make sure that you have enough to carry the debt and pay the interest. Sometimes, it is easier to invest with your own money, especially is you are looking to buy and hold for a while.
2. How risk averse are you?
Investments and risk go hand in hand. The potential return of an investment is usually associated with how much risk is involved. Are you the cautious type or are you more adventurous? Be honest with yourself and you will save yourself countless sleepless nights. Make sure that you do not invest in a highly risky venture if you are willing to lose money. Not every single deal will make you money.
3. Your financial goals.
Consider your long-term financial goals. Do you want to preserve your capital and make small but steady returns over a long period of time or do you want to make the most return in the shortest period of time? Unlike regular investment products such as stock or bonds, returns of 10% over a few weeks is unheard of in real estate. High returns are possible with real estate but you need to buy smart and invest money in renovations in order to flip a home rapidly. Usually, good returns occur after a year or more of holding a property. The down side with that your capital is tied up and prices may change within a few months. Determine which strategy works best for you i.e. the quick flip or the long-term investments.
4. Are you willing to learn?
Real estate investing is all about learning. You will need to familiarize yourself with market studies, advertising, construction, contracts, law, and more. There is no need for you to become an expert in any of these fields but you will need to know about them so you can find the right experts and be able to carry an intelligent conversation with them. Be aware that you should enjoy learning new things over and over again. The market will change, opportunities will arise, new lending packages will become available, etc. If you do not keep abreast of all the changes in the real estate market, you could miss out on potential deals.