Building a real estate business can be a lot of fun, not to mention lucrative. The amount of money you can make from it is truly staggering, once you know how.
However, before you get going, you’ll want to ask yourself some questions. You need to be sure that it’s the right business venture for you. And you need to check that it will actually deliver the lifestyle that you want.
In this post, we take a look at some of the questions you should ask yourself before investing your hard-earned capital into a property enterprise. Check them out below.
Am I Prepared To Put My Personal Finances On The Line?
Investing in real estate requires a willingness to put one’s personal finances on the line. You need to be ready to potentially lose it all in a market crash. While people often use the phrase “safe as houses,” that term comes from a time when property pricing was rational and a predictable multiple of income. We no longer live in that world, so everyone is taking a risk.
Before you get going, ask yourself whether you really want to put your personal finances on the line. Even if you are levering up by borrowing, you’ll still need to put down a deposit you could invest elsewhere. Ask yourself whether you think current prices are sustainable or not.
How Much Energy Do I Want To Put Into It?
Investing in property is generally hands-on, not hands-off. Setting up a buy-to-let, for instance, takes a lot of work.
Think about how much time you want to dedicate to the process. Ask yourself whether you’re prepared to spend your weekends fixing your client’s boilers or sorting out their locks.
If you’re not prepared for this, get a tenant management company to do it on your behalf. However, be aware that getting them to do work will eat into your returns.
What Types Of Properties Do I Want To Buy?
Property investors rarely just go around buying whatever real estate looks cheap to them. Instead, they invest in niches, because that’s what they know.
For instance, you might see a leisure centre for sale close by. For another investor, such a project might be a disaster. But for you it could be ideal if you know what you’re doing.
Residential real estate is an opportunity, but many investors are turning to commercial property. Unlike residential, it comes with a host of tax advantages that allow you to make more money over the long haul. What’s more, you might even be able to avoid inheritance tax by placing assets in special trusts and accounts.
How Will I Screen Tenants?
Whether you invest in commercial or residential property, nailing your tenant screening process is essential. If you attract the wrong type of renter, you can find yourself in a world of pain.
When screening tenants, look for little signs that indicate that they are good for the money. Look into their backgrounds, or get a firm that specialises in sleuthing on them for you. If you have multiple tenants interested in the same property, compare them. Offer discounts to high-quality tenants with a proven track record of on-time payments.
What Is My Range?
You’ll also want to think carefully about your “range.” That is, how far you’re prepared to look in search of property investments.
Most investors begin in an area they know, such as a particular city or county. Once they’ve built a successful base, they then go looking for opportunities further afield.
Think about the real estate market you know the best (usually the place where you live). Search this area for deals and bargains, looking for opportunities to increase yields where possible.
Am I Looking For Cash Flow Or Appreciation?
When it comes to real estate investing, you usually have to compromise between cash flow or appreciation. Properties with high cash flow generally have low appreciation, and vice versa. If you can find a property with both, then you’re onto a real winner, though these are incredibly rare.
Some investors prefer cash flow because it gives them money in their pockets right now. Others prefer appreciation because all they need to do is wait for the value of the property to rise before flipping it.
Ask yourself whether you are looking for cash flow or appreciation. Usually, the answer to this question will depend on your personal financial circumstances.
So, there you have it: some questions to ask yourself before you start a real estate business.
