Are You Ready to Invest in Real Estate? The Honest Evaluation Every New Investor Should Make

By Douglas Katz – 09/17/2023

Are you dreaming of becoming a real estate investor? The idea of buying properties, earning passive income, and building wealth can be incredibly enticing. However, before you dive headfirst into the world of real estate investing, there’s a critical question you should ask yourself: “Would you lend to you?” This question serves as a reality check for aspiring real estate investors, especially those who are just starting out.

This sounds harsh, but I do not write this in an effort to pour water on the entrepreneurial flames of would-be real estate investors.  On the contrary, I think many who would have been successful fail because they fail to look within first.  The number of applicants who reach out to me with zero self-awareness as to the weakness that their file represents is surprisingly high.  They are so desperate to achieve instant success that they fail to consider what lenders see.  They spend hours upon hours trying to find the lender with enough blind spots consider lending to them or they get taken by an unsavory lender who preys on the weakness.  They are happy to tell you that you are as good looking as you think you are while taking your money.

The Mirror Tells No Lies

While your desire to be a real estate investor may be strong, it’s essential to recognize that you might not be ready.  Self-reflection should be a fundamental step in your journey because access to funds is not an automatic right, and lenders are not obligated to lend you money. The main message here is that you need to assess your financial, credit, and experiential readiness before seeking financing for your real estate ventures.

Understanding Your Fiscal Maturity

Let’s start by considering your credit score and credit history. A low credit score and a bad credit history don’t convey a high level of fiscal maturity. Imagine you were the lender, and your financial clone walked in, seeking a loan. Would you be confident in lending to someone with a shaky financial track record? Most likely, the answer would be no. Lenders want to minimize their risks, and a poor credit history raises red flags.

Your credit score isn’t just a number; it represents your financial responsibility and your ability to manage debt. Lenders use it as a measure of trustworthiness. So, before you approach lenders for real estate financing, take a close look at your credit situation. Are there overdue payments, outstanding debts, or collections? Remember that lenders need to act objectively, so even difficult times not reflective of your greater credit history will have an impact.  Addressing these issues and improving your credit score should be a priority.

Experience Matters

Another crucial aspect of your readiness as a real estate investor is your level of experience. Suppose you’re new to real estate investing, and you want to buy a property with no money down and finance the necessary repairs. Now, put yourself in the lender’s shoes. Would you be comfortable risking your money on an untested investor who has no prior experience and isn’t putting any of their own funds into the investment? The answer is likely a resounding “no.”

Experience is invaluable in real estate investing. It not only helps you make informed decisions but also instills confidence in lenders. As a new investor, consider starting with smaller, less risky investments to build your experience and credibility. Over time, you can work your way up to more substantial projects, but rushing into complex deals without experience is a recipe for failure.

Self-Reflection as a Path to Success

Self-reflection isn’t just about recognizing your shortcomings as a potential borrower; it’s also a path to improvement. When you honestly evaluate your financial situation and experience level, you can take steps to make your circumstances more favorable. This might involve paying off debts, improving your credit score, gaining knowledge through real estate education, or starting with more manageable investments.

Once you’ve passed your own evaluation, you’ll be in a much stronger position to seek financing from external sources. Lenders will be more willing to work with you when they see that you’ve put in the effort to mitigate risks and increase your chances of success.

Stepping Out Ready for Success

Becoming a real estate investor is a dream shared by many, but it’s not a path that should be taken lightly. Before you rush into your first investment, take a step back and ask yourself, “Would you lend to you?” This simple yet profound question can help you avoid costly mistakes and set you on a path to success.

Remember that access to funds is not a guaranteed right, and lenders are under no obligation to lend you money. Your credit history, financial maturity, and experience level all play crucial roles in determining whether you’re ready to take on the responsibilities of a real estate investor.

By honestly assessing your readiness and taking steps to address any shortcomings, you can increase your chances of securing financing and achieving success in the world of real estate investing. It’s a journey that requires patience, dedication, and a commitment to personal growth, but the rewards can be well worth the effort. So, take the time to reflect on your readiness, make the necessary improvements, and when the time is right, start your real estate investing journey with confidence.

Have an immediate need for investment real estate financing or just looking to be ready  when you find that perfect property?