As more and more people discover the financial benefits of real estate investment, it can become difficult to find the strategy that will work for you. What works for one investor may not work with another. In our latest post, we will ask questions to help you determine your investment strategy so you can develop a strong portfolio of properties in Tacoma.
Question 1: What are your long and short-term financial goals?
Before you begin investing, you need to have an understanding of what you want to get out of it. As with many goal or plans, it is a good idea to start with the end in mind and determine the steps that will get you there. What types of properties will get you there?
Question 2: Is your portfolio diversified?
It is great to find a niche and run with it. Some people make a fortune with rentals, while others find their fortune flipping mobile homes. While you might have one area of focus, the best investors will always allow for some diversification in their portfolio. In terms of real estate, a well-balanced portfolio will include single family rentals, commercial property, and even land.
Question 3: How much risk are you comfortable with?
As they say, don’t invest anything you aren’t comfortable losing. The question is, how much are you willing to risk? You might find a fixer-upper apartment building. You have the vision and if done correctly, it could turn into a gold mine. However, with a fixer-upper, there could be a list of repairs much longer than you had bargained for. Never put yourself in a position where losing the investment would destroy you financially.
Question 4: How hands-on do you want to be?
Most real estate takes work. A larger building might require you to be onsite a good amount of the time. This sort investment can turn into a full-time job, and your profits should reflect that. However, if you are looking for something low-maintenance and pretty much “hands-off”, investing in land might be the right choice for you.
Question 5: How much can you afford?
When investing in Tacoma real estate, there are a lot of numbers to run first. What will you be bringing in each month? Better yet, consider what a typical year could bring. There could be repairs, vacancies, and more. You may not be bringing in your full estimated rent each month of the year. Knowing this, how much can you afford to pay for the property each month? If you are obtaining a loan, the interest rate could be higher than with a standard mortgage loan.
Question 6: Are you open to having partners?
There are pros and cons to teaming up. You will have someone to share the workload, but you will also have someone sharing the profits. The best way to find a good partner is to look for someone who excels in areas in which you might fall short. Maybe they are great at crunching numbers, while you are great on the phone closing deals. The best partners might think a bit differently than you do, but they will bring more to the table than you would have had on your own.
Question 7: What types of property are you interested in?
Why do you like? Yes, it has to be profitable, but you also need to enjoy what you are doing to be successful. Maybe you have an apartment building but the repairs and tenant turnover is driving you crazy. A property like this might be more trouble than it’s worth. And yes, you want to run the numbers and choose something that will be profitable. But you should also choose something you like. It will help you to take more pride in the investment, helping you to better enjoy the process overall.
Question 8: Have you considered how this will impact your taxes?
Never invest in Tacoma real estate without discussing the purchase with your accountant. Many people dive into a property purchase, only to find themselves buried in taxes and costs a year down the road. Take a look at the income, expenses and cap rate. Overestimate your maintenance costs and plan accordingly.
Question 9: Are you using the investment proceeds for a specific purpose?
Some people will use real estate to achieve a loftier goal such as college or a new business venture. If you are using your investments profits towards school lets say, you might choose investments with less risk. Some options to consider would be land or REIT’s. Carefully define the returns you wish to achieve, so you can create an investment plan to help get you there.
Question 10: Do you have a strong team?
Top investors don’t get there on their own. They surround themselves with a team of people who are the best in their fields. Agents, wholesalers, accountants, attorneys and construction professionals. Before you purchase investment real estate in Tacoma ask yourself if you have a strong team in place to help you reach your goals.