5 Questions to Ask Yourself Before Investing in Real Estate
Have you been thinking about investing in real estate but are not sure where to start?
It can be overwhelming to think through all the options, all the different strategies, and all the different online experts telling you to do it their way (ha!).
Investing in real estate can fit into your existing life and goals and bandwidth, it just takes some brainstorming to think through what option would work best for you.
Here are five questions you can ask yourself to get the ball rolling.
1. What kind of return am I hoping for?
Are you hoping for a quick return on your investment or a way to make passive income over time?
This makes a difference in what kind of properties you seek out.
For example, if you want to flip a house, or build a spec house, you’re looking at a quicker return when you sell the property. If you’d like a way to create another revenue stream overtime, buying a property and renting it out - whether short term or long term - would be more appropriate.
2. How risk-averse am I?
Historically speaking, real estate appreciates overtime no matter what kind of market we’re in currently. So if you’re able to hold onto a property for a longer period of time, the risk factor certainly goes down.
For example, we recently moved out of our house and instead of selling it, we decided to turn it into a vacation rental. Since purchasing the property, the value has gone up, so if renting it doesn’t pan out, I know we can always sell it and make a profit. It’s pretty low risk to turn a property you already own into an investment.
On the other hand, our very first house flip was rather risky. It was bank owned, which means we didn’t get a deal, we probably paid too much for it (more on that later).
With foreclosures, you’re not able to do a property inspection, it’s being sold as is. So we bought it high, we didn’t have a clear idea of what all was wrong with it (spoiler, it needed all new everything) and we personally didn’t have the experience to know what we were getting ourselves into.
So think through this question, it can help you determine how big or small of a project would be best for you. It might also help determine if you partner with someone or take it on alone.
3. How involved do I want to be?
Do you want to swing the hammer yourself or hire it all out?
Do you want to manage a short-term or long-term rental or hire a property manager?
For our vacation rental, I hired a cleaner, but I manage everything else. I talk to guests, I manage the books, I schedule any repairs / maintenance, I do a walkthrough before every check in. I made the decision to do that because it’s not worth it for me to pay 20-30% of my revenue to a management company.
There’s certainly a cost analysis involved with making these decisions. It makes sense to ask yourself: Is it worth it to pay someone to do this when I can do it myself? What is my personal time worth?
For our long term rental, there was some upfront work required (advertising the property, vetting tenants) but after that, it was pretty low maintenance. We’ve also built spec houses in Colorado where we hired out everything: the general contractor, the real estate agent, and everyone in between and we just signed papers, made payments and collected a check at the end.
There’s a spectrum of involvement with real estate investing, just need to figure out where you’d like to land on that.
4. How much capital do I have access to?
Do you have money saved up to invest?
Are you setting aside a specific amount of money each month already? Or do you need to start? If you don’t have the capital you need, who can you partner with, or how can you get creative?
Maybe it’s time to create a budget, if you need some guidance, sign up for my budget bootcamp, where I walk through four easy steps to create a budget and feel ready to start saving for your next investment.
Have you talked with a lender to see what you might be qualified to borrow? It’s always smart to talk with a few lenders first to get a baseline of where you’re at currently. What would you qualify for right now? Or, if you don’t qualify yet, what do you need to do to get to that point (i.e. work on your credit, save up a down payment, partner with someone, etc.)
5. How can I learn more?
Start listening to podcasts, reading books, following experts on social media.
Bigger pockets is a great resource, their podcast, their online forums and they have a number of books published that can help with very specific topics. When we bought our first flip house, I read The Book on Flipping Houses.
I also love the concept that you become who you surround yourself with. Seek out other investors in your area; just being around other people doing what you want to do can have a profound impact on your investing journey.
If you don’t currently have anyone in your sphere, follow investing educators like on social media. Some of my favorites are Brandon Turner, Investor Girl Britt, Katie Develops, The Karwells, and Heather Blankenship.
Lastly, you can also sign up for my email newsletter to dissect deals real-time!
I’m Emily and in 2018 I left my corporate engineering job to jump into entrepreneurship with both feet. It was a winding road with lots of pivots that allowed me to realize my ultimate goal: to build freedom in my life through empowered investing and aligned partnerships.
I want to help you find that same freedom.
Whether it’s buying your first home and analyzing the investment component of your purchase, or it’s saving up to buy your first investment property, I want to cheer you on, share my experience, and encourage more people, like you, to build freedom in their lives through empowered investing.
If you’d like support in any of these areas, send me a note and we’ll continue the conversation!
