The one thing they all have in common is that they’re designed to produce income.
Good commercial real estate is a hard asset to find. It is also a scarce resource. It always has intrinsic value, and usually appreciates in value over time.
The question is – is real estate investing for you?
Real estate is an intricate business that involves many different legal, financial, and interpersonal aspects. Are you ready to jump into this complicated business? Think about these essential questions before you make your first move.
- How much money can you invest?
Investing in the real estate market requires capital. The initial outlay of cash needed upfront to acquire a property may be large or small. However, once you assume ownership of the property, you are legally responsible for the full loan amount. Be sure you can afford to invest by looking closely at your personal financial situation. How much cash do you have? What amount of debt and how much interest can your finances handle? Think about how much you can lose.
- Are you risk-tolerant?
Risk and capital go hand-in-hand. How much risk are you comfortable taking on? A large loss to a small investor has a much larger impact than the same amount to a wealthy investor with deep pockets. While risk-taking can be exhilarating, be honest about your finances and think about the level of risk that will be comfortable for you. Do you naturally enjoy taking chances, or do you tend to be more risk-averse? It’s essential for success to know your comfort zone.
- What are your future financial plans?
Are you interested in investing to maintain capital or to get the highest return in the shortest amount of time? Consider the amount of time, money, and risk associated with each scenario. Be logical. A straight 15% profit over a couple of weeks is not realistic. If you are interested in a high return, this usually means there’s a longer time commitment, which means your money will be tied up. The value of a property can change quickly, leaving you in a higher risk situation.
- Do you have what it takes?
To be successful in real estate investing, you need to be detail-oriented, a quick learner, and have excellent interpersonal skills. You need to have the self-management skills required to determine what you need to know, then go out and learn it and apply it.
- How much time can you spend?
Think carefully about how much time you can commit to the day-to-day tasks required to be successful in this business. In the beginning, you’ll need to spend a lot of time researching and learning about the business. With every endeavor, you’ll need to spend time working on legal issues, zoning and town issues, insurance, tax concerns, contracts, market research, financing.
Are you up to it?