Investing in real estate is no small decision, but it can be highly lucrative if you do it right. This means making sure you’re ready, both financially and otherwise, before you start making bids on properties.
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For those thinking about getting into real estate investing, here are the top signs you’re ready to get started, according to real estate experts.
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You’ve Got Your Finances in Order
Real estate could make you money, but it’s not a short-term investment strategy. If you already know this and have planned accordingly, that’s a good sign.
“Being in a good financial place could be a sign that a person is ready to invest in real estate,” said Adam Hamilton, CEO of REI Hub. “That’s a bit of a broad statement, but it could mean more specific things like having a large sum of money saved up for a significant down payment, being debt-free, having a stable, high income, etc. Basically, if you are able to take on an investment strategically and without financial strain.”
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You Have a Plan
Real estate investing can be complicated and time-consuming, so you’ll want to go into it with a solid plan. Otherwise, you could end up losing — rather than gaining — money.
“You might be ready to tackle real estate … if you have a very clear idea of what you hope to achieve by making this type of investment,” said Omer Reiner, a licensed realtor and president of Florida Cash Home Buyers. “It isn’t enough to just hope it all works out. If you know exactly what type of property will align with your financial goals, you will be in good shape.”
You Already Have Consistent Cash Flow or Liquid Assets
Real estate is an illiquid asset, meaning the money you put into it will likely be inaccessible for a period of time — potentially months or even years. You’ll want to make sure you’re prepared for that before you start investing.
“If you have sufficient paychecks coming in on a regular basis or other steady income, then that would also be a good indication that it is time to start investing, as that means you are able to fully finance all the costs that are incurred for property retention or other expenditures,” said Nathan Richardson, founder of Cash For Home.
You’ve Done Your Research
Before you make any big decisions, ask yourself these questions: Have you done your research? Do you know what you’re getting into? If the answers are yes, you’re on the right track.
“It is important to go with what you know,” Reiner said. “If you have a lot of information about certain neighborhoods and feel comfortable about making an investment in one of them, you will be well-positioned for success.”
This, of course, means you’ve done your research into the local — and even larger-scale — real estate market. You know the current and recent trends, as well as how to weather any ups and downs. And you’ve done additional research into property types to increase your chances of success.
You’re Ready To Diversify
Do you have room in your portfolio? If so, it might be time to invest in real estate.
“If you don’t have any allocation to real estate in your investment portfolio, real estate can be an excellent source of diversification,” said Charles Goodwin, senior director of sales at Kiavi, a private real estate investment company. “You can purchase rental property, invest in public REITs, invest in a real estate fund and more. The best way to learn is by giving it a try.”
You Have a High Risk Tolerance (and an Eye for Design)
You’ll also want to think about your own risk tolerance and other skills you can bring to real estate.
“Real estate investing might be your ticket if you have an understanding of construction, an eye for design and love housing,” said Ryan Dossey, co-founder of SoldFast. “While it is not anywhere near as easy as HGTV makes it out to be, it’s extremely rewarding turning ugly houses into homes or rental properties inside of our communities.”
According to Dossey, you’ll also need to have enough capital, be patient and have a decent risk tolerance.
You’re Ready for a Challenge
Also consider whether you’re ready for a challenge.
“A lot of people have the misconception that once you buy a rental property that you’re sailing off into the sunset making money effortlessly, but owning real estate can be quite stressful and expensive, so if someone is looking to undertake a new challenge that is very fun to learn, [then] that is the right person that should be buying properties,” said Holden Andrews, founder of Helpful Home Group.
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This article originally appeared on GOBankingRates.com: 7 Signs You’re Ready To Invest in Real Estate
