Making a highly profitable real estate investment that provides steady returns for as long as you own the property is what everyone wants. But, many people don’t know how to consistently find and buy winning real estate investments.
So in this article, we review three questions you can ask yourself before investing in a property to determine if it could be the right investment for you.
#1 How Much Risk Can You Assume?
One of the most important factors in determining whether an investment is a good choice for you is determining whether you can comfortably take on the potential risk.
Is all of your cash already tied up in other projects? Can you afford to invest in the project in a worst-case scenario?
The answer to these questions will point you in the right direction. But there are many more questions that require an honest answer, such as your credit rating, the cost of rehabbing the property, how quickly you’ll need to see a cash profit from the investment, and how confident you are in your research to identify a profitable investment property.
If you aren’t comfortable assuming the risk associated with a real estate investment, you should probably pass on the property, and continue looking for your next investment.
#2 Will The Investment Lead To Near Immediate Cash Flow?
Some investors can afford to sink millions of dollars into big real estate projects that pay off in the distant future. But for the average investor, the “right” investment property has to generate cash flow within a matter of weeks.
When reviewing a potential real estate investment, be honest about how much additional funding the investment will require before it starts to generate cash flow.
If you have the financing to invest in properties that will not generate cash for several month or years, a commercial project, unimproved land, or extremely dilapidated single family and multi-family rentals could be good investments for you.
But if you need to see a faster return on your investment, search for single-family rental properties that can be rehabbed and put on the market quickly, generating cash flow almost immediately.
#3 Will You Have The Time and/or Money To Manage The Investment?
When deciding if a real estate investment is “right” for you, determine how much time and/or money you will need to manage the investment.
Will you self-manage the property? Or, will you pay for a management company to manage the property?
If you have the desire and the time to self-mange your rental properties, you will pocket the management fee and increase your profits. But, many investors aren’t interested in performing handyman tasks or managing tenant issues, so they opt to make a little less profit and have someone else manage their properties.
However you decide to manage your real estate investments, make sure you have the time and/or money.
What’s The Right Investment For You?
The answer to, “What’s The Right Investment For You?” varies from investor to investor.
In general, though, the “right” property is one that offers the lowest risk for a reasonable and sustainable profit while generating cash flow in a reasonable amount of time.
The risk, amount of profit that is acceptable, and the time you can wait to generate cash flow with a property is all a matter of personal preference, so you are the only person who can make that decision for yourself.