Personal Finance

5 Financial Steps to Take Before You Invest in Real Estate

2 Articles Written

So you want to get started investing. Now is the best time to set yourself up for a comfortable financial future, but there are a few tasks you should tackle before putting your money to work for you. These tips apply to any investment, whether it's in real estate, tax liens, or the stock market.

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

5 Financial Steps to Take Before You Invest in Real Estate

1. Fill Your Emergency Fund

Your emergency fund is a pool of savings you set aside to pay for emergencies. It’s self insurance for things you can’t insure.

Whether it's a major car repair, unexpected medical bill, or the loss of a job, having an emergency fund can help bridge the the financial gap. Instead of turning to high interest credit cards for funding, you can turn to your emergency fund.

Related: The Foolproof Monthly Budget: How to Save Up Money to Buy Investment Properties

Before you think about investing, you need to have this account set up, adequately funded, and set aside from the rest of your assets. It’s your moat. Your protection against the unknown. If something bad happens, your emergency fund will save the day.


Your emergency fund should be set aside in a liquid account, like a savings account or certificate of deposit, so you can access it quickly.

Experts recommend you save six to twelve months of expenses in your emergency fund, with six months being the bare minimum. If you have a tenuous job situation, you might want 12 months of savings. If you have an older car or know there’s a major appliance in your house that might need to be replaced, make this fund bigger until the risk is mitigated.

2. Pay Off High Interest Debt

Next, or concurrently with the emergency fund, pay off all high interest debt. If you are paying interest on credit card debt, you should be investing in yourself and paying down your debt as quickly as possible before investing.

Every dollar you put towards your debt offers a guaranteed return. The more expensive the debt, the better the return! Not only is the return great, it’s risk-free!

If you try to invest while carrying debt, you’ll be taking one step back for every three steps forward. Earning a 10% return sounds great, unless you’re also paying 18% to a credit card on a balance.

3. Get “Free Money” From Your Employer

If you're working for a company and the company offers a retirement package, make sure you take full advantage of any financial benefits they offer. Many employers that offer 401(k) plans will offer an employer match to your contributions. Make sure you contribute as much as you can to take advantage of the free money. It's an instant doubling of your investment!

4. Build a Financial Roadmap

You need to build a financial road map. This road map will help you understand where the real estate investments fit in your broader financial picture.

What is your 20-year goal? What are some financial milestones, perhaps every 5 years?

Where does the real estate investment fit in that overall investment portfolio?

By understanding your plan, what your returns need to be on certain investments, you can make smarter decisions when it comes to the investments you consider. Do you need cash flow or are you looking for equity appreciation? Are you looking to generate a return with a flip or hold for the longer term? These are all questions that are best answered with a plan in hand.


5. Be Aware of Common Investment Scams

Finally, study the common real estate investment scams and scandals of the last twenty or thirty years. Be aware of what happened, how they could be avoided, how they could be mitigated, and how you can spot them as they happen.

Related: How to Improve Your Credit Score

When you start investing, you’ll start seeing a lot of opportunities. Some of those are genuine. Others won’t be. Seasoned professional scammers will smell the green on you and pounce if you aren’t careful. It’s not common, but when it happens, it’s extremely painful. You wouldn’t think those emails from “Nigerian princes who just need $10,000 to secure their throne” would work — but they do enough that you still get the emails.

If possible, find a mentor in your area who you can take out to coffee or a meal. Someone with knowledge and experience will help give you confidence that your investment decisions are wise for the long term.

Investors: Would you add anything to this list?

Let me know with a comment!

Jim Wang writes about personal finance, including his unconventional yet effective strategies for getting ahead financially and at life, at Walle...
Read more
    Deadrick Colbert
    Replied almost 5 years ago
    Good advice, Jim! I am a big advocate of paying off personal debt before investing. Not only do you get the guaranteed return, but it’s also a big lift psychologically.
    Jim Wang from Fulton, Maryland
    Replied almost 5 years ago
    Thank you! Slaying debt is enormously motivating. It can be such a psychological anchor that it’s hard to grow from it… plus it makes sense mathematically, so double win. 🙂
    Eric Green Real Estate Agent from Tampa, Florida
    Replied almost 5 years ago
    Paying off your debt is such a beautiful thing. Less monthly expense is basically like getting a pay raise.
    Jim Wang from Fulton, Maryland
    Replied almost 5 years ago
    Yes! I like how you put it.
    Tim Gilman Investor from Providence, Rhode Island
    Replied almost 5 years ago
    Great article Jim. I am actually following all 5 of these steps now. I have just recently paid off all of my personal debt (just have my one SFH now). I get a great 401k match from my job, and have built up my emergency fund pretty well along the way through budgeting. I have a 5 year plan which I can hopefully accomplish and with all of the knowledge I have absorbed on BP, I can spot a scam pretty quickly.
    Jim Wang from Fulton, Maryland
    Replied almost 5 years ago
    Yes! Good job Tim!
    Todd Zoellner from Kathleen, Georgia
    Replied almost 5 years ago
    Great Advice Sir.
    Helen Rolls Investor from Sydney, New South Wales
    Replied almost 5 years ago
    Good, sensible advice. I am working on the first two. I am often tempted to skip these steps because I’m impatient. It’s good to be reminded to stick with the fundamentals.
    Jim Wang from Fulton, Maryland
    Replied almost 5 years ago
    You can’t build a house until you pour the foundation right? 🙂 Doesn’t matter how much of a rush you’re in!
    Dominique Javon Hill from Fort Wayne, Indiana
    Replied almost 5 years ago
    This article is extremely vital. I’ve worked diligently with accomplishing these steps in the past year. Now I’m just looking for the right investment opportunities. I am a lot more confident about my goals now that I’ve got that out the way.
    Account Closed from Atlanta, Georgia
    Replied almost 4 years ago
    I agree this article is extremely vital. Investment opportunities are found everywhere. After I linked up Peter Vekselman real estate expert, I feel very more knowledgeable about my business.
    Julie Hicks Investor from Cumming, Georgia
    Replied almost 4 years ago
    Peter Vekselman rings a bell. I feel like I have heard of him before. I live in the Atlanta area and is looking for help in purchasing a home. Would you recommend Peter Vekselman?
    Robert Starnes Investor from Suwanee, Georgia
    Replied over 4 years ago
    Great to see you writing here Jim! your old site has really gone to the dogs since you left. It used to be like listening to the smartest guys in the room talk about personal finance, now it’s mommy hour over there. Looking forward to seeing more posts from you!
    Replied about 4 years ago
    Would have been great if you could have given us a link to common real estate scams or a good google search phrase.
    Replied almost 4 years ago
    These days, real estate market is growing at a rapid pace. Everyone wants to invest in this market. Getting information about this market is good. Thank you for sharing this blog. This information is quite informative and useful.
    Crystal Caruthers Rental Property Investor from Oklahoma, Ok
    Replied about 2 years ago
    Thanks for sharing very informative i bet no one could disagree with this article everything you have said in this article were so true especially the number 1 tip 1. Fill Your Emergency Fund.. well written i would recommend your article to anyone.