With so many television series glamorizing the world of real estate, it can be tempting to jump right in. And while I’ve certainly taken my fair share of risks in the name of financial gain, I won’t even dip my toe in the water without doing my research first. So, before you find yourself frantically treading water trying to stay afloat, take these steps to ensure the opportunity aligns with your goals now, and well into the future too.
1) Research The Basics: As with any investment before you get started it’s important to do your due diligence. To start, read up on the different ways you can get started in real estate, such as property flips, rental properties, and real estate funds. Then, take some time to get to know your local market (or the market you intend to buy into). Even spending 10 minutes a day checking out listings online can help you get a handle on market values in your area and help you make better-informed decisions.
2) Determine Your Overall Financial Goals: Before you invest your hard-earned money in anything, you need to ask yourself what you want to achieve from your investment. Universally, your goal will be to make more than your initial investment, but you need to get more specific. Ask yourself what you want to achieve from your investment in the next month, year, and even 5-30 years from now. Why are you doing what you’re doing? What is your ultimate goal? Once you have your goals and expectations down on paper it will help you identify the type of real estate investments that will help you get there.
3) Learn How to Vet Professionals: Whether your investment lies solely in the hands of a fund manager, or you simply enlist the help of a realtor to find a property, you should feel confident that they have your best interests in mind. Unfortunately, as with any industry, there will always be a few bad eggs, which is why vetting those you intend to work with is so important. Thankfully, Google can do a lot of the leg work for us, but it’s also a good idea to read up on their role as well. Even having a base knowledge will allow you to better understand their role and identify when something doesn’t quite add up. You worked too hard for your money to skip this step, so take it seriously.
4) Create a Financial Game Plan: Now that you’ve laid out your financial goals and have a working knowledge of the real estate industry, it’s time to get to work creating a financial game plan to achieve those goals. Let’s say your goal is to one day completely replace your salary with passive income from real estate. That means you’re going to need to invest in a cash flow positive property that generates income, monthly. This will most likely be in the form of a rental property. However, to completely replace your salary, you’ll need more than one property. Do you currently have the capital to invest in more than one property? If your current answer is no, how do you plan to build up that money? Will saving all the income from your first property for a specified period create the capital you need to purchase your second property? If not, you’ll need to set up another strategy. That could involve saving more money from each paycheque or a different type of real estate investment, such as a flip. Your game plan is ultimately in your hands, but it needs to be specific to be effective.
5) Consider the Reality of the Risk: While it’s easy to get swept away by the dream of being a real estate mogul, you need to seriously consider the risks. Admittedly, this isn’t a fun part of the process but it’s important, nonetheless. Take a look at your personal situation, make note of a few worst-case scenarios, and then map out what recovering from those scenarios would look like for you. For instance, if you’re investing your retirement savings in real estate at the age of 55, that’s a bit riskier than doing the same at 40. Take a moment to think through how you’d support yourself if your investment doesn’t go as planned. If you’re not clear on your answer, then you have a bit more work to do.
After completing these steps you’ll be in a much better position to make investment decisions that align with your goals, rather than jumping at the first opportunity that floats your way — and that’s how you build long-term wealth the smart way.
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