Savvy investing in real estate requires setting goals. That is because the destination has to be known before the road to get there becomes clear. First, it will force the investor to know their current financial status. It will also shape decisions about how long to hold onto a property, and will keep the investor from making emotional decisions that leads them to an over-extension of debt Romeo Abdo . Without those goals, the investors will just wander around making purchases without objective facts to guide them.
Know the Big Picture
One of the best benefits of setting goals for investing in real estate is that it forces the investor to do a complete analysis of their current financial status. There is just no way to know how long it will take you to reach a goal, or how much initially to invest, if the starting point is not known. This involves tracking income and expenses to determine a net worth. A good CPA, or certified public accountant, can help wade through these numbers.
Start with setting short-term goals. These can be anywhere from a few months to a couple of years. What kind of cash flow will be necessary? Some of the possible goals might include establishing an emergency fund, a vacation fund, or just a fund to increase the standard of living. Knowing these goals can help decide what kind of investment property will produce the desired outcome. For example, flipping houses is riskier but offers a quicker return.
Most people investing in real estate however, are in it for the long haul; long-term goals are more relevant. Look at expected major expenses such as retirement needs, college expenses, or maybe major vacations. Match the needs to the goals, and do not make the mistake of over-reaching. Remember– the larger the return, the greater the risk. Failing to keep this in mind can have disastrous results.
Compare Financing Needs versus Goals
After determining the short-term and long-term goals, the next step is to determine if those goals are realistic. Part of this process is reconciling the goals with the financing needs. How much is available to put into the investment property and how much would need to be financed? If the financing needs are too great, those goals may need to be re-evaluated. Knowing the goals will ensure that only what is necessary is actually borrowed.
Taking the Emotions Out
Investing in real estate can be an emotional decision, but this is dangerous. It leads to buying an investment property based on how much the property is liked, or being caught up in the excitement of the moment. As a result, an investor might purchase a property that will not produce a return, or it might have serious flaws. Setting goals and basing the decision on objective factors help reduce the emotion factor.