6 Questions to Ask Before Investing in Real Estate
Subtitle: Important Real Estate Investment Questions That Need Your Honest Answers
Investing in real estate presents an opportunity to earn a huge income. Today, most people take on multiple jobs to make ends meet because of the rising cost of living, which is why they aim to gain high income. Investments can greatly help with expenses, so if you’d like to increase the money you receive annually, it’s time to make some smart real estate investment choices. However, before heading straight onto the battlefield, one must always come prepared.
Here are a few questions that you need to ask yourself and the people you’re dealing with to make sure you’re making the right choice:
Do I Want to Earn Passively or Actively?
Before you go browsing through Gumtree Real Estate for your options, choose whether you want to earn passively or actively from it. If you don’t have the time to spare for another job because of the ones you already have or other circumstances, the best option for you is to find a source of passive income.
Here are some options:
If you want income but don’t want to do a lot of the work, real estate crowdfunding is your option, and there are plenty of choices for you. You choose a property (residential or commercial) and provide funding, and that’s how you earn.
If you want to be actively involved in your real estate investment, you can choose to become a landlord. You can buy a property and have it rented out. It’s also an excellent way to help you pay for the property by having it rented out so you can pay for the mortgage.
You also have the option to flip homes. You can buy an old property, make renovations to increase the value of the house, and sell it for a profit. Make sure to read a great home loan guide before purchasing any old homes.
What Are My Short and Long-Term Expenses?
Every day, you spend your hard earned money on things you need and also on some that are unnecessary. Your short-term expenses include monthly bills, vacations and holidays, home renovations, luxury purchases, etc.
Aside from the daily living expenses, you also have to consider your long-term costs. Mortgages, student loans, and retirement funds are examples of long-term payments. You pay for those for years to come, and it requires consistency.
It’s important to know where your budget goes. It’s your hard-earned money, and you have the right to spend it the way you want. However, when you plan to invest in real estate, it’s necessary that you track your expenses so you can know what budget cuts you can make to save up for property investments.
What Is My Investment Timeline?
Investing in real estate requires a lot of money, which is why you need to prepare yourself financially. Set your goals so you can determine when you will be able to make investments and so you have more freedom in choosing the properties.
If you have not set aside your savings for real estate investment, you should create a timeline to set the length of time you need to pay for the down payment. You can plan to save up for a few years, so you have enough money to cover the down payment as well as a few months advance of mortgage payments, insurance, repair and maintenance costs, and emergency funds.
Am I Willing to Wait to See a Return on Investment?
Unlike other investments, such as stocks and mutual funds, real estate investments can take a long time before you see returns. You will invest a lot of time, money, and effort into this venture, so you need to be patient.
It’ll usually take you years, maybe five or ten, before everything pays off. If you’re looking for fast cash, investing in real estate is not for you. It’s for people who are willing to wait for the long term. The waiting time won’t be so bad if you realize that real estate investments can potentially give you profits for years. You can even pass the properties to your children as long as you regularly maintain it.
How Many Risks Am I Willing to Take?
In any investment, whether it’s real estate or others, there are always risks. Your choice of pushing through will depend on how much you’re willing to risk. In real estate, there are plenty of risky situations that could happen, and they vary depending on your property choices.
Flipping properties gives you profits by selling it more than its original price plus all the money you put in for renovations. You could spend way over your budget and sell the renovated house with less or no gains at all. The market could also decline, and you won’t gain profit when you sell the property.
Location is crucial for residential and commercial spaces. Families who rent look for quiet neighborhoods that are close to schools, whereas employees prefer those that are near their workplaces. If you’re renting out an office space, it should be in a prime location where the streets are busy with people. Buying a property in a not-so-ideal place is an immense risk. There’s a high chance that people will look for more suitable areas for them.
Is the Investment Manager as Invested in It as I Am?
If you’re taking the passive route such as crowdfunding, it’s essential to get to know a little bit more about your investment manager. It’s not a 100% guarantee that his past performance will ensure your success or failure, but the data you’ll gather would still benefit you.
Find out if your investment manager has succeeded more that failed. Also, see if you can dig some dirt on any scams or fraudulent activities, which hopefully you won’t find any. It’s also a lot more comforting to know if he/she is also as personally invested in it as you. It means that you hold the same stakes, so if anything goes wrong, you won’t be left hanging with negative money in your bank account.