4 Questions You Need To Answer Before You Get Started
By JD Esajian on June 8, 2015
There are many different ways to invest in real estate. Between condos, multi-families, commercials, single-family and even modular homes, there is something for investors with different tastes. Regardless of what area of the business you focus on, you need to start at the same point. This means figuring out the where, when, why and how of your investing business. By answering the following four questions before you look at your first property, it will guide you to which areas you will have interest in:
1. How am I going to fund my deals?
Prior to doing anything else this is the first question you need to answer. How and where you fund your deals will directly impact which deals you can get. It is no secret that most short sales and foreclosure deals favor those buyers who can pay cash. Without access to cash this is a segment of properties that you may not be very successful with. You will be forced to rely on traditional lender financing. While the lending process has changed dramatically in recent years it is far from perfect. There are underwriting, appraisal and insurance issues to worry about every step of the way. The process takes longer than cash offers and certain buyers only favor offers that can close quickly. Fortunately there are many more private and hard money lenders available now than ever before. Before you do anything in the real estate business you need to have a plan A, B & C for how you plan on paying for your purchases. Everything you do revolves around this.
2. What are your real estate goals?
Are you looking to close a couple of deals a year or replace your current income? Do you want to buy rental property or look for short term rehab deals? One of the many things that make real estate investing so great is that there are different ways to do it. For ever Donald Trump there is a new investor only looking to close one deal a year. Before you can map out a business plan you should know what you want out of the business. There is really no right or wrong answer but it is important to ask the question. Your goals, like financing, lead you to the types of deals you can buy. Not every property you see will make a good rehab candidate. The same is the case with every potential rental property you look at. Let your goals guide where you look and which properties you make offers on.
3. How much time can I dedicate?
The real estate business can be a full time profession or something you do in your spare time. While either way can produce results how much time you put in will impact what you get out of the business. If you plan on keeping your full time job you need to know when and how you will find time to invest. If you are going to jump right into the business you should have an idea of the best ways to maximize your time. The investing business may appear easy from the outside but it requires hard work and diligence. Before you start your investing journey you should consider how much time you are willing to commit. This will impact which types of deals you will take and how you work them. The amount of time is not as important as how you spend it. The real estate business has changed over the ways towards a more mobile, digital friendly landscape. What would previously take you hours or days can take you a fraction of the time in today’s world. However much time you do have you need to know it before you get going in the business.
4. Do I know what I am getting into?
There is a fine line in business between knowing everything there is to know and taking a leap of faith. As an investor you need to be somewhere in the middle. At a minimum you need to have a base of knowledge to help guide you through the process. That being said you can never have as much knowledge as you will need. At some point you need to be willing to go with what you have. There is something to be said for learning from experience but never at the expense of your bottom line. Before you make any offers and get involved in any deal you need to know what you are getting into. The rehab process varies from property to property and deal to deal. Things can change in a given neighborhood. Every decision you make the risk should be in line with the reward. You never want to be blindsided by anything that happens. There is nothing wrong with taking baby steps forward. What you never want is to take one big step backwards.
How you answer these four questions will determine where your business is headed. The beauty of the real estate business is that there are many different roads to take. You don’t need to know exactly where you are going but you should have some help along the way. The more you know about your business and how you will run it the easier the transition will be. Learn as much as you can and ask many questions along the way. These four questions will be among the most important you will have when you are just starting out.