You know real estate investing is the key to building wealth. (Or at least one of the clearest paths forward). You’ve watched YouTube videos, read books, heard success stories, and spent some time researching various techniques and terminology. In short, you have some of the basics down, but you’ve never done anything about it.
But how do you know if or when you’re ready to invest in Katy rental properties?
6 Signs You’re Ready
There’s no “readiness metric” that flashes green when it’s time to invest, but there are numerous signs that indicate you’re ready to get started. Let’s explore a few of them:
1. You’re Stable in Your Career
While you’ll hear people tell you that you can jump into real estate investing whenever you want, or that “the younger the better,” we aren’t going to recommend getting into this field without first having a stable career under your belt. There are a few reasons for this.
First off, you never want to invest unless you’re confident that you have enough money coming in to allow you to cover the costs of an investment property in a worst case scenario (meaning expenses increase, no tenant, etc.). If you can’t “float” a property on your own for at least six months, it’s a sign that you aren’t ready. And you typically need a stable career with a steady income to accomplish this.
Secondly, there’s something to be said for building a career independent of real estate. It allows you to learn about yourself, cultivate some skills, and make connections – all of which come in handy when investing.
You don’t have to be at the top of your industry or hold a senior position. But you should have some degree of stability in what you’re doing. This makes everything else much less stressful and more rewarding.
2. You’re Stable in Your Finances
How are your finances doing? In order to invest, it’s recommended that you:
- Have no existing “bad debt.” This includes things like credit cards, student loans, or auto loans. Not only does this limit your buying power from a financing perspective, but it also eats away at your income and destabilizes your financial picture. (For the record, there’s nothing wrong with having a healthy amount of mortgage debt.)
- Have an emergency fund. This emergency fund should consist of three to six months of living expenses in a cash savings account. The hope is that you rarely, if ever, have to touch this money. But it gives you a degree of financial stability.
- Have enough for a 20 percent down payment. A lender might offer you 3.5 percent or 5 percent down, but it’s wise to put at least 20 percent down on any property you invest in. Not only does this allow you to skip out on private mortgage insurance (PMI), but it also lowers your monthly payments and increases cash flow. (Important note: Your down payment money must be separate from your emergency fund. Buying an investment property is not an emergency, so it shouldn’t be pulled from this account.)
3. You Have Goals
Investing in real estate can be a broad endeavor. It’s wise to have very specific goals and objectives so that you can clarify where you’re going. (For example, your goal might be to own five investment properties 10 years from now, each generating at least $1,000 in monthly income.) Use the SMART goal setting framework to be more effective!
4. You Know the Area
The most successful real estate investors are the ones who have a firsthand understanding of the markets they’re investing in. If you know the area like the back of your hand, that’s a pretty good indicator that you’re capable of making smart and strategic investment decisions.
5. You Have the Right Connections and Support
Real estate investing is not a solo game. While you might be the only one on the mortgage, you need a team of people to support and encourage you. If you feel like you have connections – including lenders who are willing to help finance your investments – consider yourself on the right path.
6. You’re Willing to Invest the Time
There’s a lot of talk about how real estate investing is passive, but be careful about where you get your information. Investing takes time on the front end, as well as from a management basis. Even with a property management service, you’ll need to be plugged into what’s happening. If you aren’t willing to invest some time into real estate, you’re better off putting your money in another type of investment.
A Word on Patience
There are hard skills and soft skills required to be a successful real estate investor. And these soft skills require certain virtues. Most important among them is patience.
From the outside looking in, it’s easy to view real estate investing as a get-rich-quick scheme. As if there’s some sort of button you press and deals come together.
“Any successful real estate investor will tell you that that’s far from the truth! Any type of real estate investment—even passive real estate investment—takes time and effort before the fruits of your labor really build and begin to multiply,” entrepreneur and investor Chris Clothier writes. “You’re not going to wake up one morning and suddenly be rich. Part of being a successful real estate investor is just in managing your expectations.”
Real estate investing is not a fast lane to financial freedom. It can take years – even decades – to generate the results you’re dreaming of. But once you’ve put in enough time and exhibited enough patience, the compounding results boil over.
Patience can’t be pruned. It must be allowed to take up deep roots in the process. Nourished enough over a period of time, it will lead you where you want to be.
Green Residential: Katy’s Property Management Leader
Your success is our success. At Green Residential, we truly believe that. And it’s why we’re so committed to helping our clients streamline the property management process in a manner that’s efficient and profitable.
For more information on our Katy property management services, please contact us!