Every year, hundreds of thousands of aspiring real estate investors are motivated by the success of one real estate investor to take the plunge and purchase their first investment property. However, after between three and five years, most new investors will have lost a lot of money and sleep. Only a small percentage of the thousands who become real estate investors each year will go on to realize their initial dreams of financial freedom dreams.
Why do so many aspiring real estate investors fail? What can you do differently as an aspiring investor to avoid the same fate as those individuals? Like many complicated questions, the answer to this question is quite simple, which is probably why most newbie real estate investors miss it. Most people who begin investing in real estate must educate themselves on the subject. They must be prepared to deal with issues arising from their understanding of the challenges they will face on their property investment journey. Check out this property management glossary to learn more about property investment terms and other risks.
To be a successful real estate investor, you must have an investment strategy. This article outlines a list of things you should consider before investing in your first property. This roadmap includes parameters that will guide all of your investment decisions. It serves as a guidepost to help you avoid making short-term decisions that will come back to haunt you later. It gives you the tools to consider all aspects of an investment before making a decision. What questions should your real estate investment roadmap include?
What to Ask Before Becoming a Real Estate Investor
1. What is my goal?
Your intended destination determines the best route. You are not purchasing real estate to own it. The properties are merely a means to an end. What is the ultimate goal? This is the most important question because it will aid in avoiding distractions – appealing opportunities – along the way. The more specific your response to this question, the easier it will be to develop a strategy.
2. What is my investment strategy?
Your short-term and long-term objectives influence the best strategies for achieving them. Will you invest for capital growth or prefer forced appreciation through strategic renovations? How will you find the right properties, and what criteria will you use to qualify them?
3. What kind of properties should I buy?
Residential and commercial investment properties are divided into two broad categories with significant overlap. Within each of these broad categories, there are layers of types. Various factors, including capital, location, and time, determine the right property type for you.
4. New construction or existing building
A newly built home is appealing because it will be easier to maintain. However, new homes are costly, and you will miss out on years of capital growth. On the other hand, existing homes are less expensive but require more work.
5. Where should I buy it?
The location of a real estate investment is critical to its long-term performance. Generally, you want to buy in areas where that property type is in high demand. Perhaps young people are moving into the area, and many employers are nearby.
6. When should I invest in property?
It is important to time your investment; experienced real estate investors will tell you that your profits are made when you buy. The state of the local housing market determines whether a particular investment is good or bad. Should you purchase now or wait?
7. How much money do I want to invest?
Unless you intend to pay cash for the property (not the best idea), you should get pre-approved for a mortgage. This will give you an idea of how much money you have and what types of properties to look at.
8. Should I use an LLC?
You can buy properties in your name or through an LLC you set up. Your mortgage and taxes will be affected by the path you take. It will also impact the number of investment properties you can own.
9. Who should be on my team?
Investing in real estate is a team sport. The people you surround yourself with determine how far you can go. Your well-meaning friends and family cannot provide you with the best advice. It would be ideal if you could assemble a team of realtors, mortgage brokers, attorneys, accountants, handypersons, etc.
10. Do I want a passive or active income source?
This question’s answer determines how far you can go as an investor. You can manage the properties yourself, but you will be limited in the number of investments you can own and where they can be located. You can also hire a property manager to manage the properties for you. In this case, you will be liberated from the constraints mentioned above and gain time freedom.
Because real estate investments are risky, doing your homework and continuing to learn is essential. Choose a single niche as a new investor to avoid complicating matters in the early stages of your venture. Once you’re at ease, proceed. Make it a point never to stop networking because the more relationships you can build as a new investor, the better.
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