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. 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?
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 have plans to invest, then you’ll need an excellent grasp of what drives markets, changes to laws and regulations, current trends, and warning signs to watch out for, etc. 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. The internet has a wealth of information and resources for new investors. There are websites like BiggerPockets.com that can really help. There are also dozens of how-to books, articles, and videos available for anyone who wants to learn.
2. What kind of financial skills do you have?
Investing in real estate is different from investing in stocks or other securities. It uses a specialized financial skillset as well as lingo that other industries don’t use. To be a successful investor, you’ll need to know these things to make the best 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 you think your knowledge of real estate financing is a bit lacking, do consider adding to your education.
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 good to have an exit plan even though you don’t need it yet. It’s important to stay prepared. The truth is, real estate investing isn’t just about finding great deals and buying in; it’s also about knowing the proper way and timing to get out.
4. How comfortable are you with risk?
All investments carry some degree of risk. That risk is also present in 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. It’s a good thing that there are opportunities to mitigate the inherent risks by deciding in advance what kind of real estate investor you want to be. One strategy that rental property owners employ is to 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 can tolerate high risk for that huge reward, then you may want to gamble a bit more on higher-priced properties, or those in high-rent areas. For investors that are more averse to risk and want to go the safer route, 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. And so, one of the keys to investing success is being able to bring a great team together. This means finding honest people who you respect and who understand your communication style. 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?
The way it’s been normally done before is that real estate investors were owner-landlords. The vast majority of them were people who invested in and then managed their own rental properties. That was in the past, but now the trend has changed. 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 DC Metro, 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.
Success for real estate investors involves having the best information, experts, and tools available for their use. And that is why Real Property Management DC Metro 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 202-269-0303.
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