Preparation is key to success. If you want to make money by investing in property, you need to first develop a plan. This plan involves analyzing your goals as an investor and your goals for the investment property. Asking yourself the following nine questions can help you put together a strategy for long term success.
These questions will help you focus by answering:
There is no cookie cutter plan. Each property investor will have different goals and objectives when investing in real estate. It is all about defining your personal objectives and then developing specific strategies and plans of action to meet them.
How will I make money in real estate?
- I plan to make money by collecting rent each month.
- I plan to make money when I sell the investment.
How much money do I want to make in the first month? In the first year?
- I expect to lose money in the first month.
- In the first year, I expect to break-even.
- In the second year, I expect to make a $10,000 profit.
Here are nine questions to help develop and focus your plan:
1. What Is Your Goal as a Property Investor?
You will first want to decide how you want to make money as a property investor.
- Do you want to do this as a side job?
- Do you want to quit your day job and do this full-time?
- Do you want to make a quick profit by flipping a house?
- Do you want to buy and hold a property for capital appreciation and to make passive income each month?
- There are many different ways to invest in real estate, from single family homes to industrial buildings.
- You need to consider all the options so you can choose the one or two that are most in line with your goals, finances, and personality type.
- Through research, you may learn that a rental property is not the best fit for you.
3. Where Will the Property Be Located Compared to Your Current Home?
- Decide how far away you are willing to have the property. For example, "I will not buy a property that is more than 30 miles away."
- Calculate costs for commuting to the property. This will include:
- The cost of gas.
- Plane, train or bus tickets.
- The opportunity cost associated with travel time and lost productivity.
4. What Will It Cost?
- How much money will you need to make the initial investment?
- How will you generate money for the investment if you do not have all of the money on your own?
- How much do you anticipate monthly expenses will be? Are you realistic with your numbers?
- Mortgage payment, monthly maintenance, taxes and insurance.
- Are you including a reserve account which will have funds to cover emergency repairs and unforeseen vacancies?
- How much do you anticipate monthly income will be?
- What is the vacancy rate for the area?
- How much can you charge in rent?
- Do you understand how to file taxes for an investment property?
5. How Will You Market Your Property?
- Where will you find tenants?
- Will you place ads online? Will you use a Realtor?
- Do you know how to make your property appealing to prospective tenants?
6. Who Will Manage the Property?
- Will you be the landlord?
- Will you hire a property manager?
- If so, you will need to research management companies or interview superintendents and find out how much they will charge so you can add that to your expenses.
7. How Will You Manage Tenants?
- What will you require upon move-in?
- How much will you charge as a security deposit? Landlords usually charge one to one and a half month's rent.
- How will you select the right tenants?
- Will you run a credit check on prospective tenants?
- Do you have all the proper legal forms?
- Lease, Rental Application, Notice to Quit, etc.
- Do you understand what Fair Housing is?
- Do you understand how to evict a tenant?
- Will you make your property pet-friendly?
- Will you hire a contractor to perform repairs?
- Will you do the repairs yourself?
- Who will take care of yard maintenance (mowing the lawn, shoveling snow)?