Chapter 2: What to consider before investing in real estate

In chapter two, we look at the factors to consider before investing in real estate. You just can’t rush in and put your money in it before making a few considerations.

There are people who are well suited for real estate investing while others may not be able to handle the pressures and stresses that come with this kind of investment. You have to learn about what to expect so that you can gauge which category you fall in.

Remember, even if you don’t have what it takes, maybe you can work on them. There are things that you can learn with time. There are also solutions to some hurdles that may be presented by real estate investments.

Capital

This is one of the key considerations to make before investing in real estate. You will need to have adequate capital in order for you to make your investment. Even if you save a lot of money, the probability is that you will require further funds such as loans. To invest in real estate is not easy because properties normally cost a lot. In addition, apart from buying the property, you may have to do some repairs or renovations. You have to ensure that it is in good condition.

Apart from the cost of buying property, there are also additional transactional costs that you will incur. For instance, there may be a brokerage fee. There are also taxes that have to be paid.

You can look for loans or other means of raising the capital well in advance. If you don’t manage to do this, you should then consider alternative investments.

Return on investment

Investing in real estate doesn’t guarantee overnight success. If you are looking for an investment that will give you returns in just a month or two then this isn’t the right investment for you. Real estate investors know that you have to be very patient in order to get your returns. You also need to set realistic goals.

If you try to rush your investment, chances are that you will make losses. Desperation may force you to make a bad decision such as selling your property for less money than you would have if you had taken your time. Real estate investment can be very profitable but it takes time.

In addition, it also takes a lot of hard work. This is not the kind of investment that you will make and just wait for returns to materialise. You will need to work hard so as to succeed.

Time investment

You should be willing and able to invest both time and effort before getting into real estate investments. There are many people who have managed to invest in real estate on a part-time basis. This means that they have full-time jobs but still have to manage their investments. This doesn’t mean that they don’t have to give adequate attention to the investments though.

It is good to try and see if you can spare adequate time in advance. Just test yourself like you would if you had already made an investment. You can use some time to consult with people in the industry and carry out some research. This will allow you to determine how much time you can invest in real estate investing.

If you try out this exercise and find out that you are unable to spare some time from your job, then you are not ready to invest in real estate.

Analytic abilities

Real estate investment requires one to be very analytic. You have to be rational in decision-making. Every single decision that you make will have very major impacts. You will have to make a decision on which property to purchase. After this, you will be faced with more decisions until selling the property. You have to have a keen eye and analyse the markets so as to make the right decisions.

If you don’t know much about real estate, you have to do adequate research before making your investment. You will need to be very knowledgeable so as to make well-informed decisions. It is also good to create networks with other people who are already established in the industry. This will help in sharpening your analytic skills and enabling you to make good decisions.

Stress management

Making an investment in real estate is a great financial decision. The probability of making profits is really high. That’s why there are many people who have managed to make fortunes from this business.

However, it is a very stressful venture. It’s not the kind of investment that you make and sit back and just see profits coming in. You will be faced with so many critical decisions throughout your investment which can be stressful. Finding the right property to invest in will be stressful.

You will have to make the right decision which will mean research and consultations. You will also be faced with multiple negotiations which can also be a bit overwhelming. Dealing with other professionals such as lawyers and brokers may also be really stressful.

There will also be instances whereby things may not go as you have planned. There are so many challenges to face such as external factors that affect the industry. For instance, if the economy isn’t doing well, the probability is that the real estate industry will also suffer.

You have to have the ability to deal with stress well. If you are the kind of person who can’t handle stressful situations really well, then you should consider another type of investment instead of real estate.

Research

One thing that you will need before investing in real estate is information about the real estate industry. You may have heard from others that this is a good investment opportunity but this isn’t enough to enable you to get started in the industry. You have to know as much as possible well in advance.

Knowledge will also equip you with the information that you need to make decisions. For instance, you will need to know the real estate laws in your state. These laws will govern all your transactions.

You will also need information about different investment opportunities and how they work. There are different types of real estate properties that you have to familiarise yourself with. This is critical in helping you select the right kind of investment.

You also need to research on the contractors, lawyers, brokerage firms and other professionals that you will work with. It will not be wise to just rush and start contacting professionals off the internet or the directory.

You also have to research on issues such as the location of the property. Invest your time and energy and get as much information as possible. This will be a key aspect in determining just how successful you will be as a real estate investor.

Market research

Apart from carrying out research about real estate investment, you also need to carry out some market research. Before making your investment, you have to find out just how the market is doing at that particular time.

For instance, there is a time when the real estate industry was really hard hit. Houses were being sold very cheaply. Although there was a high chance of affordability, this was still not the best time to invest in real estate.

It’s better to make your investments when the markets are a bit more stable.

Returns rates

You have to establish just how much you want to make at the end of your investment timeframe. You can make consultations with people already in the industry who can offer you advice on this. Once you establish the return rates, you will be in a better position to select the right type of property, the location, and the price.

Type of investment to make

There are many different types of real estate investment opportunities. For instance, you can decide to invest in rental properties or even residential properties.

You have to carry out research and determine the kind of opportunity that not only appeals to you most but also meets your requirements and abilities. You should also consider other aspects such as location and taxes.

These considerations will help you in making your decisions concerning making investments in real estate. The key to being a successful real estate investor is to do your research well. Ensure that you are very competent in your areas of interest. You can do this by reading widely and consulting with established professionals in the industry.