4 steps you should take when investing in real estate
Goals / Destination
Ask yourself WHY you are investing in real estate. Begin with the end in mind. Know what your end goal is, and work yourself backwards on how you will reach that goal.
What does a good deal look like to you? What are your goals for 3 year, 5 years, 10 years and 20 years? This is going to be different for each investor based on what they are looking for out of the investment.
Don’t fall in love with the deal, but fall in love with the results.
How do you plan to get to your goal?
You need to clearly know which of the following you weigh as more important: cash flow, equity, appreciation, depreciation, or principal pay down. This will determine the strategy you use when investing in real estate.
Real estate is a financial vehicle just like a stock or other investment with the goal of getting you a return on your money. You are going to have to analyze the numbers to see if a deal works with your goals.
See an example at minute 2:19 in the video of what a $24,000 investment can become.
What goes up over time?
Mortgage – No that stays the same
Taxes/Insurance – maybe a little increase over the years
Rent – yes it will continue to rise as the value of the house increases over time
Don’t look at today’s snapshot for future goals. The number one reason to buy and hold is APPRECIATION.
Exit Strategy – How will you exit the real estate business?
There are many ways you can exit the investment.
- Flipping the property
- Sell the porfolio
- Live off the cash flow
- Pass down inheritance
- 1031 tax deferred exchange
- Just wait – waiting is an exit strategy
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