Investing without a plan is very much like dumping all of your money on scratch tickets: you might walk away with a bigger pile of money, but the chances are much better that you’ll walk away wondering where all your money disappeared to. A plan doesn’t have to be perfect — in fact, when it comes to investing, the pursuit of perfection is often a stumbling block more so than a useful tool — but it does have to exist. Without one, you’re just gambling.
Here are the questions your real estate investment plan should answer.
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3 Questions to Develop Your Real Estate Investment Plan
What Do Your Finances Look Like?
You should have spreadsheets tracking your income, outgo, savings, and interest for at least a few months before you start this process — a year or more would be better, but a few months is a minimum. You have to understand what you can afford to invest, and that means understanding how much you can cut back on and how much you need to save. Don’t forget to keep track of any known large expenses (car/home repairs, vacations, and so on), and assign money to them as needed.
What Are Your Goals?
Different real estate investors have different goals, and your goals will determine what exactly you do with your money. So before you look into your investment options, sit down and write out your goals. You need to include how long you’re willing to have your money tied up for, what amount you’re saving to achieve, what you’re going to do with that amount (in case the value of what you want significantly changes in the interim), and how great your risk tolerance is.
What Are Your Options?
The field of real estate investment is enormous (there are far too many options for us to get into here). Now that you know what you’re willing to invest, how much risk you’re willing to take on, and how long you’re willing to wait, it’s time to go find an investment option that matches as closely to your goals as possible.
One of the biggest mistakes common to new real estate investors is a failure to understand just how expensive real estate is to maintain — be certain that, wherever you get information about your potential investments, you get a very detailed list of what kinds of maintenance costs you can expect to pay. These are the things that make or break a real estate investment.
Always Go In Person
When you think you’ve found an investment that looks on paper like it meets your needs, go there and look at it. Paper has a way of obscuring the fundamental flaws in a property. You might find out, for example, that an otherwise perfect home was just recently marred by the discovery of a meth lab next door, and that’s why it’s so inexpensive. Or you might find that the property description neglected to mention the fact that every time the heater comes on, the entire house smells like stale urine. No matter what kind of investment you’re going to be doing, any time a building is involved, you should be involved — personally.
Set, Go, Ready!
Once you’re set — the research has been done, the money has been set aside, a little extra money has been set aside just in case, and you’re convinced the idea is going to meet your goals — take the plunge. If you wait for the “right” moment, you’ll never invest, and you can always make course corrections as you go to keep your goals in the crosshairs.
In the end, having a plan is crucial to success in real estate investment — but the point of the plan is to get you off the starting block and pointed at the goal, not to rigidly define every step of the race.
How did you develop your real estate investing plan?
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