It’s often been asserted that Real Estate investing might be the best and effortless ways to create wealth. In some ways that is true since, with a humble monetary outlay and a reasonable supply of sweat equity, real estate can be purchased and resold for a hefty gain and the opportunity still looks excellent.
While Real Estate investing can be easier than other forms of reaping a good return on investment you should not assume that it is easy.
The largest obstacle to being successful in real estate investing, for those starting out, is the sharp learning curve. Real Estate investing is a complex industry and it does not matter where your real estate is located. You can lose large sums of cash faster than you can say ‘stock market crash’. This is especially true if you haven’t done proper investigation ahead of time.
Let?s examine the procedure by exploring various things to think about before jumping in to real estate investing.
Before investing cash, invest a little time. Consider what your monetary goals are that you want to accomplish and how soon do you want to arrive there.
It is easy to dream about what we want to accomplish but we must bring these dreams down to earth. Sure you say but how? Housing prices have been going up for a number of years and they still are going up. Real estate is just like all commodities, real estate values vary and may go down, and when they do it could be a sharp, steep decline. If history is any guide, the most likely scenario is a sharp decline.
Writing out your monetary and time commitments is a good and practical exercise. A one year to five year business plan is indispensable and does it in as much detail as you can. A review of your business plan on a regular basis is needed to see how you are coming along and to tweak it as needed from time to time. A good rule of thumb is to check it after six months and again after two years.
Be sure to include an approximation of how much money you have to invest. Since you might choose to use your own house that you are living in as your first investment this financial cost can vary widely among individual investors.
If you plan to operate with less than $10,000 to start with then you are going to need to be looking at either using your primary home or purchasing a ‘fixer-upper’ to be your first investment.
You can buy a secondary property with no cash down and a few of thousand dollars in closing costs if you have good credit. But the housing market would have to go fast, and you would need to sell quickly.
The problems and risks involved have severe tax and legal penalties. The substitute would be to take on larger monthly payments and maybe extra expenses on repairs. Here again you can this can be dangerous and possibly costly. You have a greater possibility of losing more than your beginning outlay, even if you only interject a small sum of cash, you’re going to be legally responsible for the complete undertaking.
An unwise move for the newbie:
Back to your business plan, you need to indicate the level of risk you are ready to take. The level of personal risk one has can be calculated by past experience. If you have not had any past dealings with large sums of capitol on the line then you will have to do some introspection of your personality. Ask someone close to you what they think about your risk level. Some people can deal with an outstanding balance of hundreds of thousands of dollars floating in the balance while others could not sleep with having $10,000 on the line.
Many people invest with a leaning toward capital preservation, others investors want maximum dollar return in the fastest time. Many folks differ widely in their tolerance for risk. Know your limits or you could be in over your head quickly.
How much time do you have to dedicate to your new venture? You will have to create a association with a lender, study all about your individual market, contracts involved, required insurance, your legal rights, other party legal rights and requirements, various tax consequences, and various other facets of real estate investing.
If you find this all to be an interesting challenge and all the above sounds ok, then Real estate investment might be just for you! You can generate a substantial additional income, or a full time living if you want to since real estate investing continues to be one of the soundest investment opportunities obtainable. Although you can generate a pile of money ? it’s a great adventure too!
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