Investing in real estate is a great idea, if it’s the right decision for you. There are a few questions that I had when I thought about doing it myself before deciding that it wasn’t right for me right now.
DO YOU HAVE ENOUGH MONEY TO INVEST?
Whether you’re buying a rental property or flipping a house, you’ll need quite a bit of capital to invest. Either way, you’ll probably need a down payment. And if you want to be successful, you’ll probably also need to spend money each month. Can you afford to spend an extra $500-$1,000 each month while you own this property? Maybe you’re buying a house to flip it. You’ll need a lot of money to make the improvements to the home. And if you don’t have the money, you’ll need to borrow the money. Do you have the capacity to make the monthly payments until the home is sold? Be prepared to have the house longer than you expect, because the unexpected surprises are what most people do plan for. But they always tend to happen, so be prepared.
HOW MUCH OF THE WORK CAN YOU DO YOURSELF?
If you’re simply buying a rental property, you can probably get by without doing too many upgrades. But if you’re buying a home to flip, how much of the fixing-up can you do? If your Mr. Fix-It side doesn’t go much further than the paint brush, you’ll end up having to pay a lot of money to have it done professionally.
ARE YOU PREPARED TO LOSE MONEY?
This goes along with the idea that unexpected things happen, but I’ve known a lot of people who have failed at real estate investing. Maybe the realtor wasn’t honest with you about the “potential” of the house. Maybe the market will slow down dramatically after you buy and you have to carry the mortgage payment longer than expected. Maybe something major happens to the plumbing. Perhaps there is dry-rot. You just never know. But I’ve known many people who have actually lost money when they’ve decided to flip a house.
The thoughts of getting rich from real estate entices a lot of people to put any extra money into investing in real estate. But there is no “get rich quick” scheme, and they call it an investment for a reason. You actually put money forward! There are enough risks to make this a fairly dangerous investment, but it might be right for certain people. Ask yourself these three questions, and if you answer “no” to any or all of them, think twice about your decision to invest in real estate.