Real estate investing is a challenging business. You may have heard from advertising claims and get-rich-quick schemes, that investing in real estate is very simple and you could reap the rewards instantly. The truth is, it is neither quick nor easy. However, it is a time-tested pathway to wealth. It is 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. For this reason, you need to ask yourself these six important questions before embarking on the journey of real estate investment.
1. How much do you know about the real estate industry, market, terminology, and so on?
It’s vital to be able to spot a good deal on a property, but successful real estate investing requires knowing more than that. If you are planning to be an investor, then you’ll need an excellent grasp of what drives markets, changes to laws and regulations, current trends, and warning signs to look out for, among other things. If what you know isn’t complete, it’s a good idea to first learn all you can about real estate investing. After getting a good grasp of these things, you can then plunge in and purchase your first rental property. BiggerPockets.com and other websites like it have a wealth of information and resources for new investors. There are also dozens of how-to books available, as well as articles and videos.
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 used that is different from other industries, and successful investors need to know it to be able to make good deals. To illustrate, let’s say someone wants to begin investing in rental properties. They 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 think your knowledge of real estate financing isn’t complete, then it would greatly help if you learn more.
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, as all businesses do, 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 drafted a business plan yet, create one that will help you articulate the big picture and solve any minor issues. It’s also vital to have an exit plan before you actually need one. Ultimately, real estate investing isn’t just about getting in; it’s also about knowing how and when to get out.
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, there will still be a few wrinkles in your plans. It’s not immune to Murphy’s law— something can and will go wrong. Fortunately, you have the opportunity to decide in advance what kind of real estate investor you want to be. By doing so you mitigate the inherent risks. Many rental property owners develop a niche, purchasing similar properties. It’s a pretty smart strategy especially if you take to account that their experience gives them a deep understanding of one particular kind of investment property. If you want to go for a higher reward investment and don’t mind the high risk that goes with it, you may want to gamble a bit more on higher-priced properties, or those in high-rent areas. For those who are more averse to risk and would rather have a bit smaller but surer profits, less expensive rentals in stable neighborhoods might be the better option.
5. How strong are your interpersonal skills? Can you work well with others?
At its center, real estate investing is a business that relies on relationships with other people. As a real estate investor, you’ll be spending so much time with a large team of real estate, mortgage, and home remodeling professionals. It follows then that finding people who understand your communication style and forming a team built on integrity and respect with them is one of the keys to investing success. If you notice real estate investors who are successful, you can observe them leveraging their trust in other people to help them complete the many tasks that real estate investing requires. By doing this they accomplish so much with so little time spent. 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?
The old generation of real estate investors were owner-landlords. That means that the vast majority of them were property owners who invested in and then managed their own rental properties. This was the practice in the past, now the trend has shifted. That’s because this approach tends to limit your investing potential. What happens is that you get restricted to a small geographical area. Using today’s real estate platforms and with the rise of national property management companies such as Real Property Management Prestige, investors can buy rental properties just about anywhere. You no longer have to limit yourself and are free to chase the best deals where ever they show up. There are nearly 300 quality property management offices nationwide that are ready to take care of and lease your rental properties.
To be a successful real estate investor, you need to have the best available information, experts, and tools. For this reason, Real Property Management Prestige offers a free rental property assessment to investors looking for their first investment property. To get this free service, feel free to contact us online or call us at 281-532-5455.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.