Real estate investing is a challenging business. You may have gathered, from advertising claims and get-rich-quick schemes, that investing in real estate is really easy, but that just isn’t true. Real estate investing is neither easy nor quick. However, it has been proven again and again that it is a path to wealth and can give you an inflation-proof way to grow retirement and other accounts. Becoming a successful real estate investor requires a certain amount of experience, knowledge, planning, and skill. Because of this, there six important questions you should ask yourself before you jump in.
1. How much do you know about the real estate industry, market, terminology, and so on?
You have to know how to spot a good deal on a property. It’s an important skill. But successful real estate investing requires knowing more than that. If you plan to be an investor, you’ll need an excellent grasp of what drives markets, changes to laws and regulations, current trends, and warning signs to heed, among other things. If what you know about real estate investing isn’t complete, then it’s probably a good idea to first learn all you can about it. After getting a comprehensive education on it, you’ll be better equipped to make your first purchase. There are sites with a wealth of information and resources for new investors— sites like BiggerPockets.com. There are also dozens of how-to books, articles, and videos out there.
2. What kind of financial skills do you have?
Investing in real estate is different from investing in stocks or other securities. There is a financial skillset and lingo being used in the industry that sets it apart from other industries, and successful investors need this so they can get the best deals. Take as an illustration that someone wants to start investing in a rental property. They would need to know how to analyze a potential property for cash flow, estimate repair and maintenance costs, calculate anticipated rental rates based on current market conditions, the amount of your expected return (both long- and short-term), and more. Now, if you haven’t mastered the terms and ideas in real estate financing yet, do think about expanding your education. It will really be a great help.
3. Do you have a clear vision for your real estate investing business?
If you own a rental property, you are in the investing business. And just like any other business, yours will benefit from having a specific set of goals and a detailed plan of how you intend to achieve them. If you haven’t done so yet, create a business plan that will help you articulate the big picture and navigate through any obstacle. It’s also necessary to prepare an exit plan, and it should be done long before it’s needed. This is because real estate investing is not just about getting in; you need to think about how to get out at some point as well.
4. How comfortable are you with risk?
All investments carry some degree of risk. It’s the same thing with real estate. While the risks in real estate investing are different from other types of investments, Murphy’s law still holds true— things can and will go wrong sometimes. Luckily, there are opportunities to mitigate the inherent risks by deciding in advance what kind of real estate investor you want to be. Plenty of rental property owners develop a niche, purchasing similar properties. This is a good idea since their experience gives them a deep understanding of one particular kind of investment property. If a high risk and reward are more your thing, you may want to gamble a bit more on higher-priced properties, or those in high-rent areas. For the people who are more averse to risk and would prefer surer profits that may be a bit smaller, less expensive rentals in stable neighborhoods might be the better option.
5. How strong are your interpersonal skills? Can you work well with others?
The nature of real estate investing is that it really is a business that relies on relationships with other people. As a real estate investor, you’ll be rubbing elbows with a large team of real estate, mortgage, and home remodeling professionals. It follows that one of the keys to investing success is the ability to form a team of people who you can communicate with and with whom you can develop a relationship of honesty and respect. Real estate investors worth their salt leverage their trust in other people to help them complete the many tasks that real estate investing requires. This enables them to spend less time and achieve more. They also engage in networking opportunities and trade referrals as a way to solidify and build mutually beneficial business relationships with others.
6. Who is going to manage the property?
Traditionally, the vast majority of real estate investors were owner-landlords. These were people who invested in and then managed their own rental properties. That was the past, however, and times have changed. The explanation for the change is that this approach tends to limit your investing potential. Instead of being able to invest anywhere in the country where the market is favorable, you will be limited to a small geographical area— within a short driving distance of where you live. Using today’s real estate platforms and with the rise of national property management companies such as Real Property Management Metro West-Worcester, investors can buy rental properties just about anywhere. It no longer matters where you find the best deals. There are nearly 300 quality property management offices nationwide ready, willing, and able to care for and lease your rental properties.
Real estate investors that are successful all have the best available information, experts, and tools. Which is why Real Property Management Metro West-Worcester offers a free rental property assessment to investors looking for their first investment property. To receive this valuable free service, contact us or call us at 508-329-6000.
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