Are you wondering how to get started in real estate investing and whether or not you’re financially ready? The sooner you start the higher the likelihood of achieving your goals, but there are a few things you should do first.
1.Set Reasonable Goals
Beginning to invest is like starting a long journey. Before you start, you need to know where you want to go (what returns you want) and how to get there (how to set up your portfolio). Examples of investing goals would be “I want to retire when I am 50” or “I want to help pay my child’s college tuition in 15 years.”
Knowing exactly how much money the goal requires is also beneficial. If you want $5,000,000 to retire, but only have a couple thousand dollars per year to contribute, you need to adjust your goal. You should not expect to significantly outperform the asset class in which you are investing. You also need to remember that the key benefit to investing is the power of compounding returns over time. In the beginning, you are building the foundation and the real growth occurs later. If you are trying to earn enough to go on vacation this summer or buy a car next year, you need to rethink your strategy.
2. Establish an Emergency Fund.
Life Happens. You need to be prepared. If your car breaks down, your company closes, or you suddenly need to spend an inordinate amount of time at the hospital, you need to have some reserve funds to help you through the tough times. Establishing an emergency fund that will cover 1-3 months of living expenses is a responsible thing to do prior to investing. Once established, you are one step closer to taking control of your financial future.
3. Eliminate Bad Debt
In today’s world, living with debt is nearly inevitable. Mortgages, car loans, student loans, and credit cards are ubiquitous. Not all debt is bad, but the part that is can really interfere with your long-term financial success. Bad debt is any debt that is costing you more per month than you could earn with an investment. This is usually credit card debt although some car loans can be high interest. You are ready to invest if your loans are under 5-8% and the payments are reasonable. If not, it’s likely prudent to focus on getting rid of the bad debt first.
4. Find a Mentor/Advisor/Partner
A near infinite combination of investment options exists. Choosing the right portfolio of real estate, stocks, bonds, notes, tax liens, etc that will give you the best chance of achieving your goals can be a daunting task. If you have a job and other obligations, you don’t have the time to understand all of the intricacies of various markets. The two most common mistakes people make are 1) blindly dumping money into a 401K or IRA and 2) being frozen by the fear of making a bad move and not doing anything. A financial advisor or Turnkey Provider can work with you to determine how to achieve your goals and explain any associated risks.
5. Pay Yourself First
If you aren’t careful, expenses will always expand to match or exceed your income. Make the commitment to invest a certain amount of money each check, month and/or year. Set this money aside before you start considering how often you are going out to eat or whether to buy a new TV. By establishing this habit, you will ensure your portfolio continues to grow.
The only way to secure your financial freedom is to take control of it. The sooner you start investing, the more powerful the benefits of compounding returns will be. Now that you know how to get started in real estate investing you have a better chance of securing your financial goals… To find out more about investing strategies that can earn you passive monthly income while building wealth in real estate, contact us.
Erik Hitzelberger
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