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5 Questions to Ask Yourself Before Investing in Real Estate

by Ken Horst on January 28, 2014 · 3 comments

  
Question Invest in real estate?

You’ve decided that you’re interested in investing in real estate.

Maybe you think you want a revenue stream or you’re thinking about saving towards retirement. At any rate, you’ve decided you want to add investment real estate to your portfolio.

Wait a minute. Please take a little bit of time to step back and evaluate whether this is the best thing for your personal financial situation. Investing in real estate isn’t for everyone and it doesn’t fit into all financial pictures equally. It can be a complicated matter just determining whether it’s the right thing to do for you.

In this post, though, you can get started with finding out if real estate investing could work for you. Here are five questions to ask yourself before investing in real estate:

  1. Do you really know what you’re getting into? There are many different types of opportunities for investment. Is investing in real estate really what’s best for you? It’s not like stocks or bonds; real estate investing often requires a more active role. It means that you’re responsible for making sure someone else’s house doesn’t fall apart. And on top of it, you want to make sure that you’re making enough money from the property for it to be a worthwhile investment. Make sure you understand what you are doing before moving forward with real estate investing.
  2. Do you understand how real estate fits into your investment profile? Beyond acknowledging the responsibility, real estate investments need to be considered along with your entire investment portfolio. Without doing the proper research, you may potentially end up with something that doesn’t help as much as you’d like. Additionally, depending on how you’ll pay for the property, you should consider how long it will take for your investment real estate to start paying off, as compared to when you want to retire.
  3. Have you explored the risk factors? Of course, no investment is absolutely safe, but real estate has it’s own set of risk factors. There’s the usual risks associated with investment, in that you take the risk now to pay money into something in the hopes that your investment will pay you big returns later. It’s also a physical property, though, as opposed to a sort of currency, like stocks. The building could be struck by a tornado, flooded by storms and more. You’ll need to make sure that you can afford insurance coverage, depending on the community and local risk factors.
  4. Are you asking the right questions?  Of course, this post is supposed to help you with that. Everyone is different, though, just as everyone’s financial situations are different, there are only so many questions that can apply to everyone. Ultimately, you should be asking questions, of yourself and your true retirement picture, of your financial adviser, of your lender, other people who have invested in real estate: People who could have information that could impact what you think and feel. Get as much information as possible before you move forward with real estate investment.
  5. Are you in it for the long haul? Many investments can be fleeting. Stocks and bonds you could theoretically buy and sell in a matter of seconds with a few clicks of a mouse. Real estate is different. Once you’ve sign on the dotted line, you’re going to be invested for a while, as it takes time to find new buyers. You may also be committing to upgrades, if you want the property to appreciate faster. You have to be sure that you’re in the real estate investment game for the long haul before you take the leap.

Real estate investing is more involved than many other types of investing. You’re not just taking ownership of a piece of paper, you’re responsible for someone’s home or the building in which someone’s business is housed. Asking the questions above is just a starting point, but they can help you understand a little better about whether or not real estate investing is for you.

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{ 3 comments… read them below or add one }

gerald harris January 28, 2014 at 5:21 pm

When I first got into real estate 15 years ago i didn’t know what the heck i was doing. All I knew was I wanted to buy a piece of property. I had seen a late night infomercial (like many of us have) and I was on fire. Little did I know that you may actually have the mental know how, but being able to apply that was something totally different. I had gotten up to about 3 houses, and lost them all to foreclosure. I did not understand positive cash flow, trust, ARV, rehab costs, reserves, etc…… You will go thorough your fears and bumps and bruises in this business, but trust me, if you stick with it, it WILL pay off!!

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Fionna Merciollis January 29, 2014 at 10:35 am

That one is a very good blog post Ken. It sums up all the points that a person need to ask himself or herself before making the plunge into real estate investment. However, we tend to forget these things and ultimately land into a financial mess. In fact, I’ve come across many individuals where the investor doesn’t have a clear vision where he is actually putting money in and what are the returns as well as risk factors. In addition, most of these investors do what their financial consultant have asked them to do, without verifying the facts. I hop after reading this article, the readers will not do the same mistakes that many have already done. Thanks again.

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Katerina Stavrinou February 18, 2014 at 8:02 am

Depending on what property investment means for you, it is essential that you get a team of consultants that will not only try to fulfill your wishes regarding real estate investment, but will also ‘measure’ your wishes along with financial situation and long term goals. Search for a dedicated, trustful advisor, describe what you have in your mind and take advantage of his/her expertise to build the right team that will end up in an informed investment that will exceed expectations. Whether it is a commercial property or a house by the beach, share your dreams with the right people!! Katerina Stavrinou MRICS, Athens

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