Deciding to buy investment property is one of the best decisions you will ever make for your future. However, it isn’t something you can decide to do one day and then rush out and do the next. There is a process that you have to learn and lots of information to digest. If you think you have done that already and you are now prepared to go out and make your first purchase, here are 5 questions to help prepare yourself.
What type of property am I interested in? Are you interested in a single-family unit, a duplex or maybe a multi-family complex? Are you interested in commercial real estate? What about undeveloped land? How you answer this question will determine other things that you do later, such as how you go about financing your investment. It is also best to focus on a particular type of property so you don’t go on wild goose chases and so your team knows what they should be helping you with.
Do you have a specific area that you are interested in? Are you going to invest in the city where you live? If not, what part of the country do you want to invest in? The Internet is the best resource for determining what area of the country you would like to put your time and money into. Ken McElroy, author of The ABCs of Real Estate Investing, calls this Level I research. Later, when you have determined a part of the country and a city in which to look, you will need to decide on a neighborhood. You will find that during McElroy’s Level II and Level III research.
Do I have a plan to pay for it? The type of investment property you are looking for (as well as your own assets) will determine how you can make your purchase. If it is a smaller investment such as a house, you may choose to pay for it outright. However, even if you don’t have the money to pay for it, if it is a piece of property that has generated cash flow in the past, the bank will probably give you a loan. They know that they will get a ROI regardless of what happens to your investment. If you are looking at a larger piece of land that you can’t afford outright, you will probably be able to find other investors to partner with you.
Do you have a team in place? It’s just too hard to be successful at this without a good team. This is simply because there is so much work, and so many disciplines of knowledge involved, that you simply can’t do it all by yourself. You won’t have enough time to become skilled at real estate law and accounting, plus broker your own deals and manage your own properties. It is necessary to delegate. That is why McElroy says you start with an attorney, an accountant, a broker and a property manager. After that, you may also need appraisers, tax consultants, a surveyor, a structural engineer, an architect, an estate planner and more.
What is your repair budget? This is very important. Knowing this will help you determine what areas to look around in because some areas may be full of old buildings or some newer buildings may actually be in need of a lot of upgrades. You will have to know what you are getting yourself into and whether you can afford it.
This is by no means an exhaustive list of questions. Once you start your real estate investing adventure, you will find a consitent list that you will need to pay attention to. But these will get you going on the path to asking yourself the right kinds of questions. Sometimes asking the appropriate questions is more important than the answers themselves.