The more you treat your real estate investing like a business, the more successful you will be. You want your decision making focused on maximizing return on investment. By removing emotion from the equation, you will be able to logically evaluate all available data for profit potential. This due diligence step is essential.
Here is some reasoning you do NOT want to use when making an investment decision. Do NOT invest in a market simply because you live or used to live there, because you have a friend/family member that lives there, or because you think you might want to retire there. These are emotional reasons to buy real estate and the #1 cause of bad investment experiences relates directly to people using this thought process when buying. You need to use unbiased logic based on research, data, profit potential, risk and return.
Instead of using proximity between you and the house or where you like to vacation as a deciding factor in where to invest, consider these intelligent and logical questions to ask:
- Where will I get the best return on my investment dollar?
- What is the long term appreciation outlook for the area?
- What is the vacancy factor?
- What is the strength of the job market?
- What are the school district scores?
- What is the distance to the job center?
- Is there convenient shopping close by?
- Is the neighborhood generally well maintained?
- What is the crime rate?
- Is it median priced for the area?
- Is the rent affordable for the area?
- Is it in a Landlord-Friendly state?
Use OPM (other people’s money) like bank loans, and OPT (other people’s time) like property managers to speed your success in real estate investing. You are most likely good at what you do, so let others do what they are good at doing. By surrounding yourself with a team of professionals, it creates a win-win investment environment.
If you are investing in California (other than your own home) chances are you are probably making an emotional decision based on speculation, fear, or lack of knowledge. California is a “Tenant-Friendly” state and one of the most unaffordable places to buy property in the country. Even with a 40%-50% down payment it is hard to break-even. As the saying goes, “Live where you want and invest where the numbers make sense.”
Another word of advice: Don’t fall in love with the house, fall in love with the returns. The property is just a vehicle to get you where you want to be – financially independent. You MUST set your investment criteria specifically to fit your own investment goals and needs and not copy someone else’s. Setting your investment criteria can be a simple assessment of your investment goals, age, experience level, amount of capital to invest, ability to qualify for financing, and desired returns. When you’re buying a rental property it doesn’t matter where YOU would live but rather where other people want to live. Consult with one of our experienced Real Estate Advisors if you are looking for assistance in setting your unique investment criteria.
Quote of the week: “No matter what the situation, never let your emotions overpower your intelligence” ~ Author unknown