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4 Questions To Determine If Real Estating Is For You
I have to admit it. Being labelled as a real estate investor can sound sexy. Someone shorting and longing the stock market will often be mentioned in the same breathe as a speculator. Putting money in a fixed or structured deposit is often associated with those who have no idea how to invest their money. But real estate? The very mention of investing in real estate is often stereo typed as a serious investor. Maybe it has something to do with how the word typography looks. Maybe it has to do with the audio wave when mentioning it. Or maybe it is a mentality that have been conditioned into us from decades of watching investors making it big in properties. Whatever the reason, real estating is more than just buy, hold, and sell.
You could be watching the market with your money ready pounce when the opportunity strikes. You could have already got your feet wet from dabbling in flipping single family homes. Or you could have bought a shoebox apartment smack in the town center waiting for prices to explode. If you are still new to this, you can still back out. Or you could also reinforce the conviction that you are made for this. You have the right temperament, patience, and discipline. But really. Are you made out for this? Answer these 4 questions and you will know.
1) Is time a resource that you have?
2) Are you a problem solver?
3) Does real estate really interest you?
4) Can you keep afloat when the market turns on you?
These 4 questions will not determine your success. But they will be able to address your suitability whether you should start out at all. If you are already facing trouble from your first foray, it is not too late to acknowledge that you are not cut out for this and step back. There is nothing to be embarrassed about. You could be making your mark in other alternatives.
Is time a resource that you have?
Making the right purchases and landlording requires a huge time commitment unless you are hiring people to manage those properties for you. You need to research your potential buys and talk to experts to dig for information. A bad buy can mean that you are losing money right from the onset. And you could continue to bleed cash flow until the day you let it go. You also need to spend time networking with other investors as well as professionals in the field for the best chance of success. This means that you will have to be a people person in some sense, but at the same time, it could be a lonely journey.
If you have other commitments that require your personal time, you could be stretching yourself too thin. You will eventually get stressed out, your relationship with your family suffers, and you will start wondering what hit you. There are many investment alternatives that require less personal time.
Are you a problem solver?
This can look like a characteristic that is a requirement to any job. That is not totally true. It can be a trait that will help one to do a job better. But it is not a necessary trait to perform some jobs.
In terms of real estate, it is an absolutely required characteristic. Problems can occur while tying up a deal or managing a rental house. And in many ways, many of these problems require you to think quickly on your feet in order to secure the best possible outcome in your favour. The bad taste in your mouth can be really suffocating when a competitor steps in front of you to snag a deal due to your half-day delay in solving a financing issue. And imagine the barrage of abuse you can get from a tenant when you are unable to resolve a noise problem in the middle of the night coming from the pipes. To be a good problem solver in this line, you need extensive knowledge on the little things, a network of people with various expertise who are willing to serve you, and the ability to make people working together for your cause. It does sound like a steep hill to climb doesn’t it.
Does real estate really interest you?
Many might argue that they are interested in the money. Real estate is just the medium towards the ultimate goal. It is difficult to challenge that angle of thinking. But if profits and returns are the main focus, there are many alternatives available with a lesser need for your attention and intervention. Unlike the common financial investment products available, including insurance annuities, managing a property or a property empire requires time, a varying diversity of skills and knowledge, and hands-on action.
Getting interested in real estating due to your investment is the wrong way to get into this. You ideally want to be interested in real estating and therefore decided to get involved. The passion alone can make work feel like a day at the amusement park. You could even look forward to tackle a leaking pipe instead of cursing your luck. Because properties are long term commitments, a genuine interest in it can be an irresistible force that nudges you along.
Can you keep afloat when the market turns on you?
The reason why this question is paramount to you as an investor is because homes are not very liquid and when things turn against you, you could be looking at extended periods of bad weather due to the slow nature of how things move. Even if you manage to sell your studio apartment today, you are not going to get your hands on that cheque until some time later.
Let’s just take a simple example of a down market with little tenants. While you are sweating on the slow depreciation in value on your apartment, tenants are viewing the great selection of vacant houses for rent at low prices from landlords scraping with each other. And this is happening while you have the prospect of a mortgage payment due date coming in the mail.
The real winning investors are those who are able hold on to their assets for as long as they can. You objective is to replicate that. And to do so, you need cash buffers or liquid assets available to call into action any time. If you don’t have the cash to withstand a meltdown, start making plans on where you can obtain them should disaster happen. History has already shown us that real estate cycles are real. Calculated investors should take precautions to manage adverse situations.