Real estate investment is just like any other business; it requires a plan to measure success. Whether you are an amateur real estate investor beginning with your first rental home or in the works of developing multiple properties to flip, setting goals is an essential part of becoming a successful real estate investor. Determine the who, what, when, where, why and how for each property.
A simple but specific business plan that includes goals, strategies, and deadlines will help narrow your investment focus. Here are a few questions to get you started.
What is your primary goal for investing in property?
“I am investing in real estate so I can make money” is not a specific answer. By what means are you going to make money with your properties? Are you looking to make quick profits by flipping homes or are you going to hold onto properties for appreciation and make a passive monthly income? Determine an income goal from the expected sale price, monthly rental income, appreciation, etc. to compare with costs.
What will your costs be?
Perhaps one of the most important questions, you need to plan and account for expenses and how you plan to fund those expenses.
- What is the initial investment?
- Are you a cash buyer? If not, how are you going to generate funds?
- What are your monthly expenses for the property? Mortgage payment, maintenance, taxes, insurance, renovations, etc.
- Do you have reserves to cover unexpected repairs, vacancy, etc.?
How will you manage/maintain the property?
How hands-on you plan to be with your property will also affect your profit goals. Determine the following to account for possible additional costs:
- Will you be the landlord or are you going to hire a property manager?
- How will prospective tenants be screened?
- Can you perform routine maintenance around the property or will you hire a handyman?
- Who is responsible for lawn care, snow removal, etc.?
If you are outsourcing any of these responsibilities you may need to adjust your expected monthly profit, costs, rent, etc.
Investors planning to flip a home will need to account for renovations they can perform themselves and fixes that will require the attention of a professional contractor.
How will you market the property?
If you plan to achieve monthly income from rent, you will need to determine how you are going to attain and keep tenants in the property. Where are you going to find tenants and what are you going to do to make the property appealing to prospects?
If your income depends on the sale of the property, will you list it? For sale by owner? What are your costs of marketing the sale?
Real estate investment can be a very profitable venture if done correctly. By setting goals, strategies, and deadlines with each individual property ahead of time, you can properly assess and measure attainability and profitability of your investment.
For more information on purchasing and managing investment property, download our Investment Property Guide.