Over the past few years, with the real estate market being soft, there has been a lot of interest for many to want buy investment property. Some have stayed away because they didn't know how low the market was going to drop, while others threw caution to the wind and jumped in with both feet wanting to take advantage of the market. Believe it or not, both can be right and wrong at the same time. Here's how.
If you are skeptical about the market because the timing wasn't right for you financially, you probably made a good choice. However, there are a ton of different ways to overcome that financial fear. If you had jumped in with a good plan, worked the plan and stayed true to your own abilities, you should be in good shape poised for continued growth and equity in your property within the next 5 years. If you jumped in and are neck deep with abandon recklessness, you can bite off more than you can chew and get upside down very quickly causing a ton of financial stress and burden on you and your family. Bottom line, to become involved in investment property, the VERY first thing you should invest in is your education. There is MUCH more to investment property than just buying a house, fixing it up and selling it or renting it. MUCH MORE. Here's just a few things to consider before you jump into investing:
1. What's your goal? Every business, venture or investment should have a goal. Short term and long term goals should be established early and reviewed often. Don't be afraid of goals changing because they probably will. You want to be flexible as the market changes, adjustments in financing, pricing, etc. Main thing is have goals and work toward them.
2. Look for a mentor. It's difficult to admit that you don't know everything but a mentor can be invaluable for you as a real estate investor. You will find there is a ton of rejection in this business. You have to have some tenacity to stick with your plan and not become discouraged. A mentor won't be in the trenches you are in. They will and should be a source of encouragement for you, be a sounding board and resource of knowledge. With that in mind, a mentor may not be in real estate! They may be from any walk of life that helps you develop and are encouraging. A mentor needs to be honest with you, someone you trust and listen to. You may not agree 100% of the time but giving you a perspective that helps you make the most informed decision you can make.
3. Learn your market. If you don't know your market and invest in property, your flirting with disaster!!! Learn the market your investing in. Are prices going up, going down, stagnant? How is new construction in your area? Are there new industries moving into your market or are they leaving? How is the unemployment in your area? What resources do you have for vendors, contractors, suppliers? If you have an REI club in your area, it could be a great source of networking with other investors and realtors helping you with this information.
4. Self assess your finances. With any investment, there is always risk and reward. You need to know what your tolerances are and how much your willing to invest. How do you want to structure your financing of investment? All cash? 100% financing? (yes, that is very possible) Hard money or private investors? The list can keep going but studying each of these and the pros and cons of how to finance your deal will plan a key roll in your success. Having a plan B or alternate can give you some comfort hedging your risk.
5. How much time are you going to spend? Unlike buying stock where you push a button buy your stock and pray, real estate requires you to be more involved. How much or little your involved can determine your success or failure. If you work full time and only have the weekends, you can still make it work but you don't get double digit returns without being active. It's a business and you want to treat it like that.
The more you know and educate yourself on this business, the more success you will have. A word of caution about education. Don't think that you will read books, get a mentor and become wildly successful with just that. Education gets you started and motivated but ACTION is the best education. Alternatively, you can get 'analysis paralysis' if you do nothing BUT educate yourself. So, don't fall into either trap. Educate yourself, get with a good Realtor, study yourself, the market and finances and TAKE ACTION.
Next week, I'll drill down on some of this information and give you some real life examples of some investors I've worked with to show you how investments can work. Have a super week!
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