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5 Questions to Ask Yourself Before Investing in Real Estate

Ken Horst
3 min read
5 Questions to Ask Yourself Before Investing 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.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.