If you are considering real estate investments as a part-time business, a full-time career, or a means of raking in some extra cash during your retirement years, one of the first questions you must have an answer to is…How Much? How much do I want, or can afford to invest? How much of a return do I want to get back on my investment? How much work/time am I willing to personally contribute to my new venture?
The answer to your first “how much” question may be the easiest one of the 3 to answer, based simply on your cash-flow position. However, it still requires a good deal of thought and planning on your part, because even if your financial position is very strong, you still need to work with an investment budget that will be used specifically for your first real estate investment as well as future investments. Obviously you’re not going to just throw money at any of your projects.
If you haven’t constructed a sensible and comprehensive plan then the answer to the second “how much” question will be quite an easy one, but not necessarily a sensible one. “As much as I can get” is hardly an answer given by a prudent (if not astute) investor when asked what kind of ROI do you anticipate? No, you must think in terms of percentages, albeit a wide range of percentages, but nevertheless percentages. This answer will have more to do with how you answer the third question than the second question, because the higher of an ROI you want to get, the more of your personal time/work you may need to contribute.
Let’s look at it this way. If, for example, you have the knowledge, experience and expertise to manage most aspects of your real estate investments, and you have the cash resources to make purchases without the need for financing, you automatically eliminate at least 3 real estate specialists that would otherwise have to be a part of your investment team, so to speak. In doing so you eliminate any fees, commissions or charges that would have been paid to those specialists thereby increasing your ROI.
Investment in real estate of any kind doesn’t mean just handing over an extra amount cash. With every large investment, there are specific rules and processes that are defined in order to ensure that your money will be going to the right place. If you are investing in real estate, you will want to know what initial investments will be as was mentioned as the first “how much” question.
If you have found a property and are beginning a process for buying that property, you will begin to make some initial investments soon after the first contract is signed. Most real estate purchases will require a down payment, which usually consists of money going to the person that is selling the property. This will then be credited towards the purchase you are making. If you have extra money set aside, you may want to include it in the down payment, as this will make a difference in the amount you’ll have to finance, your final approval AND the amount of your monthly repayments.
Another set of investments that you will be making is for any extra costs from the team that you have put together. For example, a property inspection will usually cost a small amount of money. There may also be extra fees linked to the lenders paperwork and other expenses you may incur relative to the contract. Every person that is working with you will receive a commission or part of the investment that you are making in the beginning.
Before you start out in search of viable real estate investments, make sure that you know about the initial out-of-pocket costs and how it will affect your bank account. Setting aside a specific amount of money for your first property, or knowing how much to include in a down payment after buying a second property will help you to make the right decisions from the beginning. You will also want to make sure that you walk into your investment property with enough money to get you completely in the door and ready for the next phase; Preparing your new investment for resale or tenancy.