Thursday, March 4, 2010

The Big Why of Real Estate Investing

First and foremost, why did you decide to invest in real estate?
The answer to this question, the big “why”, will help you sort out your level of motivation and commitment to investment. There are no right or wrong answers here, only insight that will help you narrow down the specific areas in which you may wish to concentrate your time, money and efforts.
Here are some questions to get you started:
Are you simply curious and hoping to learn more about real estate as an investment vehicle? Are you planning to buy your first house? Or have you bought properties before and want to know more? Do you have friends or associates that have done well investing in real estate, and you’d like to join them?
What are your assumptions about real estate investing? Do you believe it is the path-or at least one path- to wealth? Do you have the impression that this path will be easier or quicker for you to achieve your goals? Is there some burning desire or passion moving you in this direction?
What are your financial goals around investing—in real estate, or in any other investments? Is real estate a primary investment vehicle, or part of a larger investment portfolio?
What would you hope to do with any financial rewards from real estate investing? Pay for college? Your children’s education? Retirement? Supplement your current income? Quit your job?
How much money –specifically-- would you need from your real estate investment in order to accomplish your goals? The more specific you can be in answering this question, the better you will be able to chart a path to help achieve it.
Write down your answers to these questions and thoughts about real estate investment as if it were a personal mission statement. An example might be: My real estate investment in rental properties will provide at least $75,000 annually in passive income, on which I could retire in ten years.
Note that this statement assumes a positive outcome we hope to achieve at a specific time in the future, with a specific financial target. It helps the author to visualize a future they desire in concrete terms. Whether it is realistic or not will depend on the specific plans the investor puts into place to achieve it. And of course, like any plan, the specific steps to get there will evolve as the results of previous actions provide outcomes that either meet, exceed or fall short of targeted goals.
Savvy investors are clear about their goals and have plans to accomplish them. They can articulate very clearly what their investment strategy is and why. As a novice investor, you may not have all the answers yet, but this is where you will start: with your Big Why. You can always change or modify it in the future. Your specific strategies, e.g. your specific type of investment, may change as you learn more, but your reasons for investing in the first place probably won’t. They are the motivation to keep you moving toward your investment goals.

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