Real estate investments are popular. I am sure that you had a lot of opportunities to hear that it is good to buy some real estate, preferably a small apartment in the city center, put it into rent and then pay off a loan or your own investment. And that's fine. Markets have seen some trends that the broad population of small investors followed. With the increased demand for such real estate, the price increased. This example is a simplification of just one option of real estate investment. Options and opportunities for investment are very different.
That is why it is necessary to meet yourself and accordingly choose the type of investment that is best suited for you. To be able to do this, you need to know how to ask the right questions. By studying the questions and potential pitfalls below, you can learn how to assess an investment before engaging your hard-earned cash.
Invest actively or passively? Do you have the time and expertise?
Real estate investments can be very complex. Managing real estate, tenants etc. can be very time consuming and tedious. But, some investors like the idea of being a landlord, being in touch with people, organizing the maintenance of the property, etc. On the other hand, some investors simply do not have the time to deal with all aspects of real estate business. I think it is clear who should seek the active and who should seek passive investments opportunities. Such decision and input can largely determine the further course of the investment. Also, make sure that you will consult the right person on this step - you need to determine if you need help from a real estate agent or a real estate consultant.
Are you investing for income, capital appreciation, personal use, or a combination?
Investing in real estate can bring together all along, but is on the investor to seek a balance between them, especially income and personal use. On the other hand, choosing one priority does not mean that an investor must keep that priority at all costs. For example, an investor invested in a revenue-generating property, but the market changed and the price and demand for this property have grown. It is only logical for the investor to decide to sell capitalize on his investment. It works both ways. As you see it is essential to actively manage your investments.
What’s your investment timeline and how important will liquidity be to you in the future?
The real estate market is cyclical with its regularities, but sometimes with sudden changes. Identifying the time frame and the need for liquidity is a very important segment of every investment. For example, if an investor wants to invest in the quick resale of real estate, it will certainly be important for the investment to be very liquid. On the other hand, for the revenue-generating property, it takes a long time to sell and return the investor's equity.
Is real estate going to be a full-time business for you or a sideline?
Some investors were initially considered real estate investment as a hobby or plan for retirement and soon it outgrew their investment management capabilities. Each investor should carefully consider and assess how much time and money is ready to invest in real estate. This will determine the way in which investor will manage the investments and what kind of support the investor needs from professionals.
How would you define success for a particular real estate investment?
Most investors will tell you money. In the form of capital gains or cash flow. But that's not the only measure of success. For example, some investors like to invest in old buildings, renovate them and put them on the market. Others like the clean plot and Greenfield investment. The third like to invest in a finished property because their business model generates better cash flow etc. If an investor knows what the most important aspect of his investment is, it will make it easier for an investor to determine how a successful investment should look like.
Although there are many choices and options, each of us individually must answer these questions, thinking about personal preferences, experience, financial circumstances, and opportunities to which we have access. There are no right or wrong answers in this process, but only those that can help us determine the right path and the right strategy of our real estate investments.
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