You’ve spent months doing research, attending seminars, networking, and building your web presence. You have done your best to mentally prepare for taking the leap and purchasing your first property. But, time and time again, you find yourself procrastinating, getting cold feet, or finding reasons that now isn’t the right time. So how do you know when you’re really, truly ready to start investing in Kailua Kona homes, or real estate in general?
There are a few things that you absolutely must have in place before investing in Kailua Kona homes. If you’ve done your research and meet all of the criteria below, congratulations–you are ready! Stop doubting yourself and take the leap.
Perhaps our first point should go without saying, but you’re only ready to invest in Kailua Kona homes, or real estate in general, once you have cleaned up your personal finances. You would be surprised how many people plunge headfirst into a real estate venture in the hopes of making a quick profit without first cleaning up their personal finances.
In fact, many people turn to real estate as a quick fix in times of personal financial crisis. Not only do these individuals often lack the financial skills to succeed in real estate; they also don’t have a financial buffer to weather the storm of unstable market prices and unanticipated repairs. Turning to real estate to improve poor cash flow typically produces a negative return on your investment.
Getting your finances in order is the most crucial step in initiating your real estate venture. You’re ready to invest in Kailua Kona homes once you: have been making more than you spend for more than a year; have stable, consistent, and reliable income; have paid off all outstanding debts aside from standard monthly credit card bills and mortgages; and are able to save a substantial portion of your earnings every month.
Evaluate the status of your savings relative to your average monthly expenditures. If you have 6 months worth of expenditures in savings, you are financially capable of investing in Kailua Kona homes.
Finally, it’s not enough to have simply paid off sizable credit card debt. You must have an adequate credit score to ensure that you can procure fair mortgages. Unless you are planning on paying in cash, a solid credit score is absolutely essential.
You are only ready to begin your real estate venture once you have saved sufficient capital. It is important to have enough capital reserved to procure high quality, long-term financing. Financing should be adequate to cover high-quality Kailua Kona homes, the risk profiles of which are suitable to your current financial situation.
It is important to ensure that you have enough capital to purchase a property that is high in quality and low in risk. Many investors make the mistake of settling for properties whose down payments equal their available capital. These types of properties typically do not match the investor’s risk profile. Instead of purchasing a low value property with a poor risk profile, continue saving capital. You are ready to start investing once your capital reserves are equal to the down payment on Kailua Kona homes with appropriate risk profiles.
Certain forms of real estate investing, like house flipping and wholesaling, promise quick profits. While jumping into a flipping or wholesaling operation may produce quick cash, it doesn’t amount to a long-term investment strategy. If you’re diving into investing in Kailua Kona homes with the expectation of turning a quick profit, stop. You’re not yet ready to invest!
Investors of all types should take the time to formulate a long-term business strategy for their real estate operations before jumping in. So long as you continue wholesaling and flipping without long-term goals, you are generating active income, not passive income. In other words, you are exchanging the time that you work for profit instead of actually investing.
There’s nothing wrong with active income, of course! If you have a competitive advantage in your local market—unique knowledge of the market, good relationships with affordable contractors, significant experience with specific types of properties—real estate can generate ample, active income.
Most investors, though, are seeking passive income from Kailua Kona homes. Generating passive income is more profitable because it demands less time. However, it also demands thorough strategizing. Though you can use active forms of real estate investing, like wholesaling and flipping, to fund future buy and hold investments, you should clearly delineate how you intend to do so.
A quality, long-term real estate investment strategy should involve plans for buying and holding. Even if you begin real estate in wholesaling or flipping, buying and holding should be your long-term objective. Indeed, it is one of the only low-risk, high-reward investments on the planet.
You don’t have to iron out every detail of your real estate business plan before starting to invest. But you do need to make SMART goals and outline your objectives so you know what you’re working towards and how. How will you repair and market your Kailua Kona homes? What kind of tenants are you seeking? What kinds of property are you best suited to invest in? Will you manage the property yourself, or hire a property manager? What do you expect your cash flow to look like down the line? Ironing out the details beforehand will allow you to move forward with more confidence and security.