Are you ready to invest in real estate?
There’s a reason why real estate investment is so lucrative, despite its volatility. For several decades, it has proven to be the best generational wealth-building mechanism across the country. Can you think of a better way to grow your net worth and diversify a portfolio while still maintaining flexibility?
Since you clearly have the desire to set foot on the property landscape—otherwise we wouldn’t be having this conversation—why not take the plunge and invest in a property that can give you huge returns down the road?
Your two investment options
There are two ways to go about property investment.
- One is purchasing shares in REIT or a real estate investment trust, which is similar to buying into a fund or purchasing stocks. This form of real estate investment requires you to have a deeper understanding of how the fund is designed and how shareholders plan to extract value from its holdings.
- The second investment option is direct ownership. In this method, you buy the property yourself instead of in shares of a pool of properties. For an informed buyer, direct ownership can be a rewarding option. (However, not so much for an unprepared buyer…)
Gear up with research and knowledge surrounding the type of property investment you’re seeking.
But how do you know that you’re truly ready?
Signs that you’re ready to invest in real estate
“When you know, you know.”
While an intuitive belief or confidence in your knowledge may work for any other type of investment, when dealing with real estate, you need to consider many other factors. Overconfidence can be deceiving for many investors, who end up losing money due to shortsighted mistakes.
Look for these signs of readiness:
- You’ve done your homework: when purchasing a TV or new car, what is your approach? You compare various models, brands, prices, and features and finally arriving at a decision, right? Well, property investment requires even more due diligence. Network with other investors in local forums and groups, scour the internet, read books—do whatever you can to educate yourself about types of investments available in your budget range, the local markets you’re interested in and their possibilities. Once you do that, you’ll be ready to make safer decisions and will minimize any risks involved.
- You’ve got healthy risk tolerance: Even after doing your homework, potential risks may still come a-knockin’. When you’re ready to invest in real estate, you also must be ready to absorb and combat the costs and setbacks that can come with it. According to financial planner Riley Poppy in Insider, there’s a lot of uncertainties to consider. “There are so many variables there,” he said. “Real estate can come down to the location. And real estate reacts differently when the market does poorly, and sometimes real estate can do well when the broader market is doing badly.”
- You’ve amassed good credit: Making sure you have attained a strong credit score is important for your property investment prospects. This way, you’ll get the highest return on investment and can qualify for the lowest mortgage rate possible. And, if you already have great credit, that’s certainly a sign!
- You’ve analyzed your goals: A careful goal assessment will help you to determine the right property to invest in in order to get what you’re hoping to achieve. Do you want to own a property for the long term? Or do you wish to purchase a rental property for passive income generation in the meantime? Think about where you see yourself financially in the next five years, and the kind of lifestyle you want to be living. That’s when you’ll know you’re ready.
Now, you’ve got this! Take a step closer to your real estate investment goals and remember this: there’s a massive network of people who have done this before who can teach you a lot, whether that happens one-on-one or via online resources.