Decide what type of property you want to buy. Would you like to invest in residential
properties such as apartments or duplexes, or are you more comfortable with
condos and commercial property? Make
sure your goals are specific, clearly defined and measurable. This will help you to identify opportunities
when they are presented to you. But be
realistic; it is likely you will not able to afford the “perfect” property your
first time investing. Get your foot in
the door and start trading up.
Southern California, where I live, has experienced a
significant increase in prices over the last few years, making it difficult to
find properties that would provide a return you could live on and allow you to
quit your job unless you have a lot of money to put down. Most people investing for the first time
don’t have a lot of cash available. If
you need cash flow, find areas where appreciation may not be as high.
I have been investing in Tucson for several
years. I picked Tucson because it’s
relatively close by; I can fly there in about an hour. I lived and worked in Tucson, and my wife got
her start selling real estate there, so we have lots of contacts and are
familiar with the areas. I don’t usually
recommend buying your first property out of the area, simply because it’s too
difficult to keep an eye on it; but if it’s your only option, try an area you
are at least familiar with or have friends or family members you trust who can
drive by your property and check on it from time to time.
Set your investment parameters; it will help you make
decisions when opportunities arise. When I started I was not looking for an investment we could live off of;
rather, I was looking for a way to offset our living expenses and increase our
net worth over time. My goal was to
create a large real estate portfolio that would serve as our retirement
fund. So, my first purchases were
properties that I lived in. Although
they paid for themselves and provided my family with a place to live, they did
not give us a significant amount of cash flow.
Why would I buy them? For one thing, many have doubled or tripled in value. That was an unplanned bonus, and I took
advantage of it. I was able to borrow
against my first property, which allowed me to buy my second, my third and so
on. Plus, because of low interest rates,
tax deductions, rent increases and depreciation, I still did not experience a
negative cash flow.
As my life changed, so did my investment goals. After my first son was born, my driving
motivator was to quit my full-time job so I would not miss out on the most
important years of my son’s life. So, we
adjusted our original goals and property parameters. We needed to find properties that would give
us a cash flow. The property we needed
to buy would not only have to pay for itself, but also provide an income for us
if I was going to quit my job. After
talking with our accountant and doing the math, I determined what we needed then we simply went for it.
Ultimately, the key to our success has been and continues
to be that we carefully plan and set goals for what we want.
Questions
to ask yourself:
- What are your
investment goals?
- What are your
expectations?
- How much money do you
have to invest?
- Do you know for what
loan amount you will qualify?
- What is your
tolerance for risk?
- Do you need immediate
cash flow from your investment? Or, are you interested in a property that
simply pays for itself?
- Are you looking for a
good write-off?
- Are you interested in
the appreciation?
- Are you familiar with
the different types of properties available?
- Do you want to stay
local, or are you comfortable investing out of your area?
- Will this be a long
or a short-term investment?
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