Real Estate Investing Self-Assessment
Investing in Real Estate can be one of the best ways to build long-term wealth. However before you start it’s important to go through a process of self-discovery to determine if it’s right for you and if so which approach you should take. After you spend some time thinking through the following and being completely honest with yourself you’ll be ready to start deciding which specific investment strategy will work best for you.
Some Questions to Ask Yourself
Risk Tolerance
It’s extremely important to determine your risk tolerance and be honest with yourself, before getting involved with any investment. Many people hear about the success stories of how Joe Investor made millions. That leads to a false impression and creates unrealistic expectations. Think about how you handle unknowns, unexpected things going wrong or the possibility of losing money. Will you be up all night worrying or will you dust off the loss, learn from it and immediately start strategizing. Only you can answer this question and it’s imperative that you be honest with yourself.
Main Objective
What is the main thing you are trying to accomplish from this investment. And please don’t say “get rich quick”. That’s the fastest way to ensure failure. There are many benefits of investing in real estate but the two main things people are looking for are Cash Flow and Price Appreciation. Of course ideally all investments would result in both however you should pick your primary objective. Most times you will be looking at very different properties and/or different neighborhoods if your main objective is Cash Flow vs Price Appreciation. Are you looking for extra cash on a monthly basis now or are you looking for above average price appreciation 5-10 years from now?
Finance Strategy
You don’t need to be an expert in all financing options but you do need to be very clear on your current financial situation and know how you will acquire your new piece of real estate? Do you plan on paying all cash? Are you going to put 20% down and finance the rest? If so, have you spoken with a lender yet? Are you going refinance your current house and take out some of the equity to use as the down payment on the investment property?
Skillset
What are your strongest and weakest skills? Are you great with numbers and analyzing data? Are you very handy and maybe have some experience in construction? Are you great with people? This is important when deciding which type of real estate investment you should get involved with and which you should stay clear of.
Knowledge Base
How much do you already know about the specific investment you’re about to get involved with? Have you ever purchased real estate before? Are? you skilled in one or several areas of construction? Do you understand different types of financing? Are you familiar with the neighborhood you’re about to invest in? I’m not implying that if you are not knowledgable in these areas that you should not move forward. However you should be in tune with your knowledge base so you know where you either need to lean on others or research and learn more about. You will learn a ton as you get more experienced but it’s important to identify where you need to improve.
Work Ethic/Drive
This is not as simple as simple as “I work hard”. Since most of you will probably have full-time jobs and other potential responsibilities this question is more related how much you are willing to sacrifice to make the investment successful. Are you willing to put in extra hours after you’ve worked a long day for your full time job? Are you willing to work weekends and potentially sacrifice going out with your friends or family time? You need to determine how much more time you are willing to spend on your new investment.