Skip to content
Home Blog All

5 Ways to Know You’re NOT Ready to Invest in Real Estate

Erin Spradlin
3 min read
5 Ways to Know You’re NOT Ready to Invest in Real Estate

I love investors, because like myself, they tend to nerd out over spreadsheets and let the numbers do the talking. They are risk takers who have found a way to maximize their money, so much so that they are very comfortable, and/or may not need a job all together.

Because that’s a pretty awesome place to be financially, I meet a lot of aspiring investors who want to be in that world. And while it may not be easy for them to tell if they are ready or not, it is fairly easy for me to tell 1.) if they are ready; and 2.) if they are someone I’d like to work with. Below I’ll break down some indicators that you’re not ready, plus some ways to help you become more prepared for the investing world.

1. You Have Not Read a Single Book on Investing

I know some people might push back and say they listen to podcasts or contribute to BiggerPockets forums, but I say having read at least one book on investing is important. Reading a book takes more effort than listening to a podcast or occasionally going to a forum. It’s deliberate. It takes time. It requires a commitment. And, if you can’t commit to 250 pages on something you say you want to do, then maybe it’s not something you really want to do. (Need book suggestions? Here’s a few excellent books on real estate and investing: Rich Dad, Poor Dad (Robert Kawasaki), Long-Distance Real Estate Investing (David Green) and the E-Myth Real Estate Investor (Michael Gerber).

2. You Have Not Adjusted Your Spending

You spend your money on what you value, and there is no right or wrong on that. But, reviewing your finances will give you a good idea of whether or not your lifestyle reflects your goal. If it’s not, maybe it’s not actually your goal. Are you still going out to eat a lot? Still paying for glamour coffees? Been on two international vacations this year? That sounds awesome. It honestly sounds like my perfect year. But it doesn’t sound like a good way to prepare for an investment.

Related: 4 Signs You Are Ready To Get Started Investing In Real Estate

advice-for-millennials

3. You Haven’t Talked to a Lender Yet

Assuming you aren’t planning on paying all cash (and you likely shouldn’t, because paying all cash means you are buying one property instead of leveraging your money for multiple properties), you should talk to a lender. This is true whether you are a first-time home buyer or a serious investor. Talk to a lender as soon as you can. They will run your finances, build out a plan for you, and help you really understand where your finances are.

4. You Focus on Too Many Metrics

Analysis paralysis is a real thing. Pick one metric and know it well. Know why you picked that metric, and know why it matters to you. The metric I use for my two rental properties in Denver is cash flow, because I value having someone else pay my mortgage on a property that is appreciating fast. So, if it cash flows, I’m happy.

Related: Blogger Roundup: 21 Reasons Newbies Struggle to Close Their First Deal (& How to Overcome Them!)

5. You Have Unrealistic Expectations About Your Market

“I want a multiplex for $250k within two miles of downtown Denver,” and/or “Looking for off market properties that fit 1 percent rule, prefer 2 percent.” I get emails like this all the time, and while I understand where this comes from, and I admire the optimism, it needs to coincide with reality. Investors do like to tie their numbers to cap rates, cash-on-cash, etc. but they also understand where they can get those numbers (Denver isn’t great for it, Pueblo is better), and it’s not in a super hot market with a lack of inventory. Worse yet, this commentary can make you seem unserious and limit your relationships with the kind of serious professionals that can get you a good deal.

You can help prevent this from happening by doing two things: 1) access Redfin for different markets and run deals on properties similar to what you want. You’ll quickly learn what is aspirational versus unrealistic. 2) Call a few real estate agents and just ask: What seems realistic for an investment with this amount of money? You should be noticing a pattern, and you should be weary of outliers.

I hope I haven’t scared you off because I think investing is very smart, and a great way to set up your future. I’m just trying to help you do a little leg work that will help you decide if investing is really for you.

blog ads 02

How do you gauge when you’re ready for something big?

Share your experiences in the comments below!

 

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