Don’t make a decision that may cost you thousands. Before you start your journey into investing in real estate, consider these key questions first!
Over the last 100+ episodes, we’ve featured a handful of real estate investors. And with the crazy housing market we’ve witnessed over the last year, we’re seeing many more people pivot into investing in real estate.
At Yo Quiero Dinero, we want to equip you with the tools you need to make your own financial decision. Here are some questions you should ask yourself before investing in real estate:
1. Are My Personal Finances In Order?
As Jannese reflects on her stint in real estate investing, she notes one mistake: not accounting for hidden costs.
If you don’t have your personal finance in order, a mistake or unexpected cost could put you in a lot of risk. Have you budgeted for your closing costs? Property insurance? Vacancy costs? The bottom line is that you want to ensure your bases are covered—even the ones you don’t expect yet!
By ensuring you have your personal finances in check, you are preparing yourself for the necessary money management that will be happening. As a first step, we always recommend conducting a level of a personal finance audit to better understand your financial situation.
Check out Episode 139 with Tom Brickman to hear about some of the risks with diving into real estate without a solid grasp on your finances.
2. How Much Time/Energy Do I Want to Spend When Investing In Real Estate?
Be clear on whether this investment strategy is one you want to expend a lot of time into, or want to take on more passively. Some investors aim to make real estate investing their main form of income. People in this bucket go all-in, either through an online real estate marketplace platform like Roofstock, or through independently building your own portfolio through connections, online searching, etc. Sometimes this even means being on the ground with your property. Think: designing the interior, doing some of the fixings yourself, managing your property, collecting rent, it truly all depends on the level of involved you want to be.
Others choose to invest in the real estate market passively as a way of profiting off the market without expending a lot of energy into it. Start to consider some of your long term goals and current life realities. This can look like investing via REITs, as an example.
Your answer here will also determine whether or not you want to build a team to support your real estate investing or if you want to do it solo.
3. How Far Am I Willing To Go, Geographically?
People living in high cost of living cities who are interested in real estate investing are often dissuaded from pursuing this investment vehicle. This is understandable, as real estate can be quite expensive in these cities. But unless you plan on handling all aspects of your investment property, you don’t need to stay within your state. As you consider out of state real estate investing, ask yourself how far you’re willing to go.
4. What Is My Tenant Screening Criteria?
If you are planning on doing rental real estate investment properties, think through your renting criteria. Some renters focus on credit checks, others on income—this depends on what you are most comfortable with. Ogechi from Episode 57 recommends picking what your criteria is and sticking to it as much as possible as you screen tenants.
5. Which Type of Real Estate Investment is Right for Me?
Answering the previous questions will make answering this one easier.
Investing in real estate can look many different ways. Most real estate investment types will fall into two main categories: the traditional, physical real estate and the passive, non-physical property type. When starting your real estate journey, you will want to give some thought to which entry point you are most comfortable with. Do you want to be hands-on and even managing? Or do you want to passively invest by not being super involved with the actual physical, real estate industry? You will be able to answer these questions as you learn about the many different types of real estate investments.
The Bottom Line
If you are interested in investing in real estate and are here reading this piece, you’re taking a great first step towards preparing for your journey. For more guidance on real estate investing, check out Episode 34 with the Make It Rain Podcast, Episode 44 with Loida Velasquez, and Episode 53 with the REI Brothers.
Check out these Yo Quiero Dinero partners to accelerate your journey towards investing in real estate:
- Have your advisory fees waived for 90 days when you join!
- Roofstock makes investing in single-family rental properties radically simple.
WANT TO KICKSTART YOUR FINANCIAL JOURNEY?
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