Investing in Real Estate - Getting Clear on Your Goals

INVESTING IN REAL ESTATE - GETTING CLEAR ON YOUR GOALS

Did you know that investment in real estate has out preformed most other types of investments in the last 100 years?  If you’re like me you get it, you realize that real estate is a solid investment and a way to growth wealth, but you don’t quite know where to start.

Most assume that the place to start is with the money needed to invest, but I would suggest that the best place to start is with clarity.  Know what you want to gain from your investment.

Thanks to HGTV and other DIY networks, a lot of folks think of a “fix and flip” when they think of a real estate investment.  In this scenario, you find a distressed property, buy it for considerably below market value, renovate it and sell it for a profit.  This type of investment can yield a quick profit, but it is risky.  People underestimate what kind of problems they’ll find in the home and how much it will cost to repair them.  It has also been challenging to find properties for sale below market value in the Seller’s market that we’ve been in during the last several years.

The second type of investment is one for cash flow.  Here the investor's primary objective is to to generate passive income.  In this case, you’re looking for a property that you can rent out for a good deal more than you spend on it each month.  To achieve this, you may need a large down payment and/or an inexpensive property with low expenses that will rent easily.  Like most real estate, this type of property will probably appreciate in value over time, but that is not the primary objective. 

The third type of investment is one that you buy and hold.  The primary objective of this type of investment is the property's appreciation in value over time.  Here, you want to find a good property in a desirable neighborhood.  You would expect to put down about 20 – 25% and you’d want to make enough in rent to cover your expenses with maybe a bit left over.  Since rents do go up over time, you can expect to have a  passive income from this type of investment that starts off quite small but grows as the property appreciates in value.

Once you’re clear on your goals, the next step is to meet with a real estate professional who can walk you through some examples of properties that meet your goals and help you define the criteria for your search.  

In the next segment I’ll review the factors that make up the expenses associated with owning a rental property and how to figure out if a property you like be a good investment.