You have made your decision to invest in the real estate sector, but you still haven’t quite committed. Why is it so? In spite of finalizing your decision, why are you so fearful? Why do you have that hesitation? What stops you from investing? Real estate generates ongoing passive income and can be a good long-term investment, then why are you so reluctant? Honestly speaking, the reason is very clear and simple. At one side; where investment in this sector is the safest option, on the other hand, it is often very capital intensive. You are often required to put in all your life’s savings, just to buy one plot. Therefore, the hesitation and a plethora of questions creating doubts. If you get satisfactory answers to all of your queries, it’s absolutely correct that you will invest only in this sector. Let’s discuss the most important questions to ask before you invest in real estate.
1st Question: Either you have enough money or not?
The first and probably the most important consideration for any real estate investor, is to make sure that you have enough money to make the purchase. Traditionally, a real estate investment consists of buying properties either to rent out or resell for profits. For many first-time investors, it will be a very expensive investment. In addition to this (if the purpose is to generate rental income), you need to do some work to add value to your investments in the form of repairs or renovations (this will cost money beyond your initial investment). Therefore, you must ask yourself, either you have enough money in your pocket or not.
2nd Question: Do you have a stable monthly income or not (for buying property on installments):
In most cases (in primary markets) sellers will require you to make a 20% down payment, when you make a deal. After giving that payment, you have to pay installments as per pre-decided installment plan. So it requires stable income to set up a budget for monthly spending and saving. In case you have stable monthly income, you can go for that option.
3rd Question: Either you want to be an active investor or a passive one?
While some assume that owning a real estate investment has to be active, there are situations where it can be a passive way of making money. Therefore, it’s important to identify which type of real estate investor you want to be.
- Active real estate investment:
Active real estate investing means you’re someone who depends on money made from real estate investment to run the show. Meaning, your role is to buy a property to rent it out or manage it yourself or to buy a property to renovate and then sell it for profits. In short, you are responsible for making a profit from it and this is your main source of earning.
- Passive Real estate investment:
On the other hand, passive investors make money in real estate without putting much efforts. For example, you will buy a property and hire a professional to manage it for you. This is not your main source of income.
So, which option do you think is best for you? Do you love the idea of becoming an active investor? Alternatively, if you simply don’t have the time to deal with managing properties and dealing with tenants, look at passive investments. Questions are as important as buying your dream home, don’t rush.
4th Question: Which type will suit you best?
There is wide availability of investment opportunities in the real estate industry. It’s important to know which opportunities are best for you. For Example, Residential real estate investing, commercial real estate investing, and land, etc. With all these options, it can be overwhelming for a beginner to choose which one to go for. This is why you should educate yourself about these strategies to see which one fits your goals as a real estate investor.
Once you’ve determined which investment strategy you want to pursue, it becomes easier to pick which type of real estate property you’re buying. Experts advise that, if you are a beginner, invest in those properties that are cheaper to buy and easier to manage. Simply speaking, it is better for you to start with a single-family home and then move to multi-family homes as you gain more experience. Basic research about the real estate will help you to determine which type of investment property you should go for.
5th Question: how can you actually find an investment opportunity?
Last but not the least, one of the most important questions that would arise in your mind is that; how can you actually find an investment opportunity that will yield a good return? The easiest way is to use online tools. There’s no reason why you should not take advantage of such advanced tools as well. You can use these tools to search for investment opportunities.
Hopefully, the answers to these four questions will help you make the right choice. GOOD LUCK!!