Real estate investing is a great way to make profit, but make no mistake-it’s not a walk in the park. It requires lots of research and planning. The average investor doesn’t know where to start, so it might be difficult to know which questions to ask first. So, we’ve highlighted the top 6 most important questions that you must ask before you start digging any deeper.
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1. Why am I investing?
Might seem like a basic question, but you really need to be able to fully answer why you’re real estate investing before you do. Are you doing it for an income? Or are you looking appreciation? Are you planning on using the property yourself? Or a combination perhaps? There’s potential for all of those objectives in real estate investing, but it’s important to decide why you’re investing beforehand because there’s often a trade-off. For example, you might be able to earn income from a property that may increase in value with time, but your ability to use it may be limited if you would like to enjoy its rental tax benefits.
2. What kind of investment do I want?
Depending on why you want to invest, decide on what kind of investment you want to make. There are tons of different types of real estate investing. You can use the property for traditional investing, Airbnb, or flipping homes. These options tend to be more hands-on and require more activity from you. On the other hand, you can choose crowdfunding or a real estate investment fund (REIT), which tends to require less time and is more of passive investment. So, decide on what kind of investment you want before jumping in.
3. Am I in it for the long run?
Or do you just want to be on the sidelines? Many people who think of real estate investing as merely a hobby or a an easy retirement plan failed to handle the responsibilities of the job. Unlike buying stocks and bonds, real estate investing is a long commitment.
But depending on whether you want to make this a full time or not, you can also better decide on what time of real estate investment you’d like make. If you’re not in for the long run, you might want to consider a more passive real estate investing options, like lending other investors money to flip properties. But, make sure you’re able to dedicate the time needed, so you can truly benefit from your investment.
4. How will you finance your property?
There are so many options out there on how to finance your real estate investment property. From cash, to loans, to using a private lender…Assess your financial status and decide how you will finance a your property before real estate investing.
Related Article: Financing a Rental Property: What’s the Best Way?
5. How long are you willing to wait for a return?
Unlike trading stocks or buying mutual funds, real estate investing doesn’t make you rich fast. You’re most likely going to have to wait a while before seeing from returns real estate investing. For example, if you’re going to opt for the crowdfunding options, it may take even up to 10 years before seeing returns! That is not say you won’t make any, but you just have to be patient. Real estate investing can be quite profitable, but you just have to be willing to be patient.
6. What is my risk tolerance?
There’s an inherent risk with real estate investing. So, after you’ve answered all the questions above, check to see how much risk you’re willing to take before diving in. For example, if you’re going for traditional real estate investing, then you need to make sure you find the property that is rentable because there could be a risk of not getting tenants. With Airbnb, you need to make sure that you need to find a place where tourists and visitors will be there often. If you’re flipping homes, the assumption is that you’ll be able to sell the home at a high enough price that will cover its initial cost and give you a profit. So, just check with yourself to assess your risk tolerance.
The Bottom Line…
Use these six questions to give yourself an idea of what you truly want and willing to give your real estate investing plan. Once you’ve dug deeper and answered these questions clearly, begin the easy process of finding the best real estate property on Mashvisor.