Real estate investing is a challenging business. You may be under the impression that investing in real estate is quite effortless and the profits come right away. This notion usually comes from advertising claims and get-rich-quick schemes. The truth is, investing in real estate is neither quick nor easy. But it is a proven way into wealth and it is able to give you an inflation-proof method to grow retirement and other accounts. Becoming a successful real estate investor requires a certain amount of experience, knowledge, planning, and skill. This is why, before you go onboard, you need to ask yourself these six important questions.
1. How much do you know about the real estate industry, market, terminology, and so on?
It’s essential to know how 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. There are sites with a wealth of information and resources for new investors— sites like BiggerPokets.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 specific financial skillset and lingo in the industry that isn’t used anywhere else, and successful investors need it so they can spot great deals. Suppose someone wants to get into investing in rental properties. 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 real estate financing isn’t part of your knowledge base yet, then consider educating yourself first.
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 all other businesses, 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 created one already, draft a business plan that will help you articulate the big picture and resolve any minor setbacks. It’s also critical to create an exit plan before you need it. 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 exactly the same with real estate. Although the risks in real estate investing are different from other types of investments, it’s quite rare to have zero obstacles. There will always be something that goes wrong— sometimes it’s a minor issue but sometimes it’s huge. 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. This is a smart move because 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?
Real estate investing is essentially a business that relies on relationships with other people. There will be a large team of real estate, mortgage, and home remodeling professionals that will work with you. That’s normal for any real estate investor. So we can say that one of the keys to investing success is being able to assemble a team of people who share or, at least, understand your communication style and with whom you can foster a relationship of integrity and mutual respect. Real estate investors that know what they are doing leverage their trust in other people to help them complete the many tasks that real estate investing requires. This allows them to achieve more in less time. 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 Humboldt, investors can buy rental properties just about anywhere. You no longer have to be limited. There are nearly 300 quality property management offices nationwide and they are all willing to care for and lease your rental properties no matter where you find those great deals.
Success for real estate investors involves having the best information, experts, and tools available for their use. And this is the reason why Real Property Management Humboldt offers a free rental property assessment to investors looking for their first investment property. To get this free service, don’t hesitate to contact us online or ring us at 707-444-3835.