7 Questions to Ask Yourself BEFORE Becoming a Real Estate Investor

By A. I. Lendberg, Edited by Douglas Katz – 03/15/23

While it does tend to run cyclically, real estate investing has stood the test of time as a great way to build wealth and income.  It is, however, neither simple nor easy.  Because of this, I always get worried when there is a real estate gold rush and everybody wants to get into the game.  In fact, my personal litmus test to be concerned is when I see multiple channels devoted to this endeavor.  Not shows mind you.  I am talking actual channels.  When that happens the siren’s call of easy money can make smart people do dumb things.

Stepping into the world of real estate investing should be accompanied with a full inventory of resources, skills, talents, relationships, et al., but with this should be a self-reflection to see if real estate investing is a dream that you have the ability to turn into a reality or self-inflicted nightmare of stress and financial loss.  Since the former option likely seems infinitely better, you should ask yourself some questions before taking the real estate investing plunge:

  1. What are your investment goals? Do you want to be the next HGTV star, flip houses for a quick profit, or make some extra cash on the side? Are you looking to build a real estate empire or just dip your toe in the water? Knowing your goals will help you determine what type of real estate investing is right for you. For example, if you want to flip houses, you’ll need to focus on finding properties in need of repairs, whereas if you want to generate passive income, you may want to look into rental properties.
  2. How much money can you invest? Do you have enough saved up to buy a property outright, or will you need to explore financing options such as non-standard financing programs or potentially seeking investment from friends and family? You don’t want to stretch yourself too thin financially, so make sure to crunch the numbers and determine what you can afford. For example, if you have $50,000 saved up, you may want to consider a fixer-upper property that you can improve and sell for a profit.
  3. What financing options are available? Can you secure a traditional mortgage, or will you need to get creative with financing options like hard money loans or seller financing? It’s important to explore all your options and choose the one that makes the most sense for your financial situation. For example, if you have good credit and a steady income, you may be able to secure a conventional mortgage with a lower interest rate.
  4. How do you plan on finding properties? Will you scour the MLS listings or hunt for off-market deals? Will you use a real estate agent or do it all yourself? Keep in mind that finding properties can be competitive, and veteran investors and cash buyers may have an advantage. However, there are still opportunities to be found, and you may need to get creative with your search. For example, you can attend local real estate investment groups, look for properties that have been on the market for a while, or even try direct mail campaigns to owners of distressed properties.
  5. What is your risk tolerance? Real estate investing carries a certain degree of risk, so it’s important to determine your comfort level with risk before investing. You don’t want to invest more than you’re willing to lose, so make sure to set realistic expectations. For example, if you’re risk-averse, you may want to focus on long-term rental properties instead of flipping houses.
  6. What is your exit strategy? Whether you plan to hold onto the property long-term or sell it for a profit, it’s crucial to have a plan in place for when you’re ready to move on from the investment. Make sure to factor in market conditions, financing options, and your own goals when determining your exit strategy. For example, if you plan to flip a property, you’ll need to have a clear timeline for repairs and a plan for selling the property once it’s fixed up.
  7. Do you have what it takes?  Real estate investing sounds fun until you get a call from your tenant at 2:00 AM or you have issues with a short-term guest.  Do you have the temperament to deal with subcontractors and vendors?  I will enlighten you that many of these conversations are not about how awesome they are doing.  What will you do if your subcontractor doesn’t show up and blows your timeline?  Most renovation loans are short-term and a timeline slip can kill your plans.  Even if you get it stabilized, will you be able to evict people when they have kids and animals that will be ostensibly homeless? These are all things that you will possibly face and if any of them non-starters, maybe real estate investing is not your best option.

In conclusion, real estate investing can be a fun and profitable adventure if you take a deliberate and informed approach. Asking yourself some simple and practical questions will help you make informed investment decisions and increase your chances of success. Keep in mind that financing options and finding properties can be challenging, but with perseverance and creativity, you can still find opportunities in the market. Good luck and happy investing!

Disclaimer: This article was created with the assistance of multiple ChatGPT AI language models and has been edited and refined by Douglas Katz. The information provided in this article is intended for general informational purposes only and should not be considered as professional or expert advice. The views expressed in this article are solely those of the author and do not necessarily represent the views of ChatGPT or OpenAI. Readers are advised to do their own research and consult with relevant experts before making any decisions based on the information provided in this article