Before Investing in Commercial Real Estate, Ask These 3 Questions

Why invest in reits

Should I invest in real estate?

You may have asked yourself this question before. Although residential and commercial real estate can be excellent investments, getting into the game can be overwhelming at first. Having experienced real estate partners can help you to learn tips and tricks of the trade more quickly, but before you invest in any type of real estate, there are some important questions you always need to ask. If you’re weighing your options and are wondering, “should I invest in property A?” or “should I invest in real estate option B?,” you’ll need to answer these three questions first:

  • What kind of investment do I want?
    Are you looking to be an active investor or a passive one? If you want to be active in the process, you could consider flipping homes or renting out a property. These options involve a lot of responsibility and know-how, and they’ll take up a considerable amount of time. If you’re wanting to go with a more passive route, you can go in on an investment by providing a small amount of funding through real estate crowdfunding. Taking on a more active role may give you a bigger payoff, but the potential for loss is also much greater. In order to determine the answer to the question, “should I invest in real estate?,” you need to figure out what type of risk you’re willing to take and what level of commitment you want to assume.
  • What’s my rate of return and my rate of risk?
    You also need to determine exactly what to stand to gain or lose from your investment. How does your ROI return with other types of investment opportunities? Figure out what you’re paying out of pocket, determine your monthly cash flow, and calculate what you stand to make after you sell. Identify the types of costs you’ll be responsible for like mortgage and maintenance, as well as the type of loss you’ll incur should things not go your way. If you’re prepared to take on those costs and run the risk, you can move forward.
  • Will this be a hobby or a full-time business?
    You need to decide whether you want to pursue a career or a side business. If you intend to participate only as a hobby, make sure you don’t take on more than you can handle. Think about how much time and money you’re willing to spend and be sure to stick to investments that will fit in well with those guidelines. If you intend to make it a full-time business, you’ll need to be adequately prepared and give the venture your full attention. You might need additional expertise either way, but figuring out the scope of your investment can help keep your expectations in check.

Real estate investment can be a real challenge, but it can also be well worth the effort. Before you dive in, make sure you do your research and determine whether it’s the right path for you. And remember to evaluate all investment opportunities before committing to ensure you’ll be able to recoup your expenses.

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