Preparing to Invest in Real Estate

By Lisa America

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    When we start something new, we often Google “Questions to Ask (fill in the blank).” Though this is a great starting point, I have found this can sometimes lead an investor to feel like his/her real estate goals cannot be met in a specific area. Often, the investor feels like they have to achieve X,Y, Z to make a successful real estate decision based on some article they read online. In my experience, the most important part of any investing strategy is to understand your true goals and not rely upon what an article, family member, or co-worker says “should” happen.

    In this article, I will provide you with a framework to better understand your real estate investing goals and the importance of being open to learning about new investing opportunities. Whether you’re a first time investor or currently hold a booming real estate portfolio, you will find the most success by being open to the different opportunities a new market may provide to you.

    To get started, write a list of your investing goals. Ask questions like:

    • How long do I want to hold this property?
    • Are there opportunities to flip?
    • Historically, has this area been a good opportunity for long-term investments?
    • Will it continue to continue to be a good area for long-term investments?
    • Am I trying to cash-flow each month? 
    • If I’m not cash-flowing then why am I investing? 
      • Sidebar: Great question! A lot of buyers think of investment properties in terms of cash-flow purposes only, but it’s far from the only option. Your strategy might be to hold onto the property long-term with the goal of the property value increasing year-over-year. Not every market is able to cash-flow easily, so discuss your investing strategies with your Realtor and ask what to expect in his/her market.

    Okay, I have my goal in mind, now what?

    Once you know your goal, conduct some research about the area in which you are eager to invest. If you have some knowledge about the area, discuss that with your Realtor. Confirm that what you believe to be true does, in fact, still hold true. For instance, a city like Austin changes so quickly that your experience from a visit two years ago may or may not be accurate anymore.

    If you are unclear about the area, first determine what neighborhood features are important to you. Be sure to share this with your Realtor so they can recommend specific neighbors or areas. Also make sure to ask your Realtor for resources to conduct your own city/neighborhood research.

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    The reason it is important to perform your own research is that we often have an idea of what a neighborhood should be like based on our own experiences. Therefore, what you see as important/typical/normal in a neighborhood does not always align with the experience of your Realtor. For example, a popular question I field: “Is this neighborhood safe?” If you ask me (a grown adult, self-proclaimed scaredy-cat), who grew up in a small town where you knew everyone and your door was always unlocked, well my idea of safety might not be totally in line with your point of view. Instead, ask: “Where can I look up neighborhood safety stats?”

    Another reason to be specific about what you want is that a Realtor cannot legally voice an opinion about a neighborhood. This is because of The Fair Housing Act, a law enacted to eliminate housing discrimination based on race, color, nation origin, religion, sex, disability, or family status. It prohibits Realtors from steering buyers away from a particular community. To avoid feeling frustrated about not understanding an area, ask your Realtor for more resources and tools to help you make the best decision regarding the area.

    Some related questions you might want to ask:

    • What sites should I be looking at to learn more about the area?
    • Where do I find school information and rankings?
    • Is there a site listing neighborhood amenities?

    My favorite part of working with clients is when they begin to select and hone their investment strategies. If you don’t get all your information from HGTV’s wide variety of real estate shows, you may not know the meanings of specific terms or understand the intricacies of different processes. 

    Don’t be afraid to ask questions! 

    For example, you may have asked if there are opportunities to flip, but do not actually understand what flipping a house entails. If unsure how TV show “flipping” compared to the real thing, I would be able to let you know “flipping a house is when an investor’s goal is to buy and then sell the house for a profit as quickly as possible. To yield a larger return, a buyer typically will need to repair and upgrade the house before selling.” With that information and clarity, we would reassess whether that is truly what you wanted to do. 

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    Additional questions to ponder:

    • Am I ok with a fixer-upper? If so, what do I actually mean by fixer-upper? E.g. Does this mean cosmetic changes like replacing the floor, new paint, new countertops or something else entirely?
    • Do I want to manage the property myself or should I hire a property manager?

    Additional questions to ask your Realtor:

    •  Is it a buyer or seller’s market? What does this mean to me as the buyer?
    • What are the predominant industries in this city?
    • Do you have a list of recommended vendors (e.g. painters, handyman, flooring company etc.)?
    • Are there different types of zoning that would benefit me as a buyer?
    • Can you help me rent out the house? If not, what sites do you recommend to list it for rent?
    •  Do you use different terms when explaining types of property in your area?
      • Here’s a great example: in Austin, if I say “are you interested in a condo?” Most of us think of a high-rise multi-unit building in the heart of the city. But in Austin, the word “condo” can be used to describe a property that looks just like a single family residence. In areas intended for moderate density, a home may be referred to as a “condo” so it can meet the zoning criteria, but it does not mean you have shared walls and an elevator to get to your floor.

    Recap and Additional Questions

    To recap, the best starting point is to understand your investment strategy/goals and clearly communicate them to your Realtor. If you need help figuring out your strategy, take a look at the additional questions above, I would be happy to discuss various opportunities that make sense for you. If you’re a SVIC member and searching for a home in Austin feel free to reach out to me via the referral generator to receive a special discount for SVIC members. Finally, remain open to a new way of investing in that market and be willing to learn from your experienced Realtor.

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