Don’t let the Instagram before and after photos fool you. Buying rental properties isn’t just about posting amazing images and bragging that you doubled your investment. There’s a lot of hard work that goes into the process that people don’t talk about. And before you even go down that road, it’s important to make sure that you’re ready and that real estate is the investment for you.
When it comes to real estate, buyers have short and long-term objectives. They may be looking for passive income in the form of renting to others, a short-term gain through flipping or rehabbing properties, or a long-term investment in a home that can appreciate for many years to come.
Questions You’ll Need to Ask Yourself
No matter what your objective, there are some key questions you’ll need to ask yourself to figure out if the risk is worth the reward whether you’re interested in becoming a landlord, flipping a property, or more:
1. What’s driving your interest?
Are you looking to build a business, are you looking to build cash flow, make quick money or make an impact? What is driving your interest to get into real estate? Sometimes people say they like watching HGTV and they want to invest in real estate. To me, that’s a red flag. It’s not as easy as they make it look on TV and the investment will last much longer than 30 minutes.
2. How much time do you have?
Is this a side-hustle or is it going to be your full-time job? People from all walks of life choose to invest differently in real estate. Hammering down exactly what the scope of your investment will be and how much time you have to dedicate to it will help determine what strategy you will take.
3. How much money do you have to invest?
While having limited funds won't prohibit you from investing (we're big on getting creative), what you lack in cash you'll need to make up with hustle. Having a reserve or funds to leverage especially if you are flipping or hoping to become a landlord is going to come in handy.
Get Clear With Your WHY and Your GOALS
Once you’ve dug deep, it’s time to get clear on why you are investing and to set measurable goals. I’m going to warn you. With real estate, everything will not go as planned. Being able to determine why you got into it, and what your long goal is will be the light at the end of the tunnel to drive you through the ebbs and flows of the business. They are inevitable!
With real estate, everything will not go as planned. Being able to determine why you got into it, and what your long goal is will be the light at the end of the tunnel to drive you through the ebbs and flows of the business.
As I mentioned earlier, knowing your goals will also help you back into your strategy or approach to investing. You might have ideas about how you want to invest based on what you’ve seen that’s cool on Instagram or YouTube, but what will actually be the best approach for you will directly correlate to the funds you have and the time and energy you have to invest in your goals. For example, an ER doctor might face a challenge investing if her plan is to invest in a flip-out of state with a brand new team. Someone in her busy profession may have the money, but not the time or desire to manage a full project. She may be better suited to find a mentor to guide her or to get into real estate in a hands-off way by lending or investing in a property that needs less renovation.
Understand What You Want to Accomplish by Investing in Real Estate
There are all kinds of ways to get in on real estate investing. When you understand what you want to accomplish, you can back into the best strategy. Here are some examples:
Wholesaling is when a buyer puts a distressed property under contract with the plans to market it to another buyer to sell it to for a higher price. People talk about wholesaling as being a great way to get involved and to make money quickly, but it actually takes a lot of time and you need to be relentless. You’ll need to constantly be looking at properties, understanding their value, and talking to people. Those nice pops of cash are great though and once you build a strong process or team, the sky is the limit!
We’ve all watched a lot of TV shows on flipping. It’s high risk, high reward. The idea is to buy low enough that you can invest money into rehabbing the house, and then still make a huge profit in the end. There are a lot of unknowns, however, that can turn into both massive headaches and expenses. If you have both time and energy to invest, the desire to update an older property, and the patience for surprises, flipping is for you.
If you are looking for regular monthly income or long-term wealth and appreciation, landlording might be for you. You’d purchase a property and then rent it out to tenants. It sounds hands-off but landlording certainly comes with its own set of unique challenges. You are going to be responsible for regular maintenance and fielding tenant complaints or issues. Landlording is a pathway to generational wealth!
With any commitment, there will be pros and challenges. Look at the full circle of what you are taking on. As an aspiring investor, you are likely looking at the benefits. For example, you might be excited to provide quality housing for tenants in a safe neighborhood, and that is definitely something to be excited about. But remember things like hidden costs, landscaping fees, and who will be answering the phone at 2 am when the tenants’ toilet won’t flush? Going into a new venture with all the facts (good, bad & the ugly) gives you the data to make better decisions proactively to accomplish the results you want.
Hiring a Team
You will likely also have to consider before long if you have the capacity to hire a team. And if so, what should you look for? First, hire a team that will fit within your financial goals. You’ll still want to be thoughtful about your income and expenses and you’ll want to make the process as smooth for yourself as possible. I always advise aspiring investors to “Know Thyself”. Be true to who you are and understand how you function. Some people like to be completely hands-on and want to be included in everything, some people want hands-off and will hire a property manager to take care of the small items. Only you will know what is going to work long-term for you.
When hiring a contractor, trust your gut. If you are doing an initial walk-through with a contractor and they are an hour late? Chances are this isn’t an isolated incident. They will likely be an unreliable choice. Hire based on not only who you like, but who you know deep down is going to get the job done. And remember, always check references!
As with anything you invest your time and money into, you will learn valuable lessons as you go. You will find ways to invest that work well for you, you’ll identify processes that maximize your time and energy. You will get there, but it will take time. I hope my advice will inspire you and give you the guidance you need to get started on your way. Remember, if it was easy everyone would be doing it successfully (not just posting quick pictures online). If your goal is to keep up with anyone other than yourself & your goals, it may not be the best option for you.