What Should I Know Before Investing In Real Estate?

Are you thinking of investing in real estate in the Fort Myers or Cape Coral areas?

While you can’t control everything, it helps to know what you are getting yourself into and actively prepare yourself to execute a sound investment.  If you are new to real estate investing, here are ten nuggets of wisdom that can help you prepare for success.

10 Things to Know Before You Invest In Real Estate

  1. Understand Your Risk Tolerance – As the famous Greek adage says “First Know Thyself”. If the idea of losing money gives you a migraine, then you need to direct yourself to lower risk investments. Outline how much money, time, and effort you can realistically and willingly dedicate to investing, then respect your own thresholds.
  2. Pick Partners Carefully – The number one destroyer of marriages, family relationships, friendships, and partnerships is money. Make sure you have a clear agreement on acceptable risk and losses with people involved in your investment.  Choose people you can stand to work with even in stressful times and that you can trust implicitly in prosperous times.
  3. Assemble A Team – Even if you are venturing out as a solopreneur, you really cannot do it all on your own. Before you get started, build a solid team including a Lender, Contractor or Handy Man, Tax Professional, Attorney and a Realtor.  If possible, find a mentor who has experience in the type of investing you want to do.
  4. Write Out A Plan – Avoid making it up as you go along. Decide what type of investment you want, how the numbers work, and who will be on your team.  Map out the investment like a project and carefully track time and expenses.  Always be realistic about the amount of time and funds you can sink into an investment.  Finally, be sure to have an exit plan.
  5. Taxes Make A Difference – An investment can seem profitable until tax seasons comes around and you are paying thousands in capital gains and other tax obligations. Keep in touch with the tax professional on your team and make sure you know the tax outcome of every potential investment you consider.
  6. Always Run The Numbers – Buying a home to live in is usually an emotional purchase. Investing in real estate is a decision based on numbers.  Carefully examine expenses, investment capital, tax burden, and even the cost of failure associated with the property before fronting your money. If the numbers don’t work, walk away.
  7. Keep A Tight Schedule – Time really is money in most real estate investments. In many types of investing, such as flipping a home, the longer you hold a property, the higher your expenses.  Conversely, in some cases holding properties long-term allow is better.  In addition, there are deadlines for inspections, payments to lenders, etc. that need to be carefully managed.
  8. Find Your People – Many cities have a Real Estate Investors Association. This is a great place to meet mentors, take workshops, meet qualified service providers, and even build partnerships.  Use Google to find associations in your area or try finding a group on Meet-Up.  These groups are also a great way to get plugged into local trends.
  9. Be Aware That Markets Have Cycles – Tune in to the local real estate market where you intend to invest. Many people made lots of money investing between 2003 and 2005.  By 2007, there was no more easy money and many “late-to-game” investors lost their money, their good credit, and in some cases even their own homes. Pay attention to the market.
  10. Know When to Fold – Just as our own homes can become money pits, so can a real estate investment. When a loss is becoming overwhelming, sometimes the right answer is to walk away. The same applies when you are making a lot of money.  Avoid getting complacent, taking on too much risk, or failing to enjoy the wealth you are accumulating because you are working too hard.

Real Estate is considered one of the most reliable paths to building wealth.  If you decide to venture into this diverse and exciting world, be sure to follow these 10 guidelines.  Remember, make a plan, not a bet!

At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.

In case you missed it, check out our last Title Junction post: What Is The Debt-To-Income Ratio (DTI)?

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