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Getting Started in Real Estate: Think First

It's often been claimed that Real Estate investing is one of the easiest ways to make money. In one way, that's true. With a modest financial investment and a fair amount of sweat equity, a property can be bought and sold for a healthy profit and the future still looks pretty good.

But easier is not the same thing as easy.

The biggest barrier to success in real estate investing for those starting out is the steep learning curve. Real Estate investing, no matter where you live, is a complicated business and you can lose big money quicker than you can say 'stock market crash' if you haven't done your homework.

So, to simplify the process, here are some things to consider when getting started.

Before investing money, invest some time. Think about what financial goals you want to achieve and over what time frame. Be realistic. Easy to say, hard to do — especially when home prices have been rising for several years and still are. But like any market, real estate values may go down, and when they do it's usually a sharp, steep drop.

Once you've decided how much of a time and money commitment you want to make, write it down. Make a one year to five year business plan in as much detail as you can, and then review it after six months and again after two years.

Part of that plan should be an estimate of how much capital you've got to invest, which will differ depending on whether or not you plan to use your primary residence as your first investment. Just as one example, if you have less than $10,000 to start with you are definitely looking at either using your own home or buying a 'fixer-upper' as your first venture.

It's true you can get into a secondary property with no money down and just a couple of thousand in closing costs if you have good credit. But the market would then have to rise quickly, and you would have to sell right away.

That's risky and has serious tax and legal consequences. The alternative would be to take on high monthly payments and maybe additional expenditures on repairs. Again, risky and potentially expensive. You stand a high chance to lose more than your initial investment, because even though you only put in a small amount, you're still legally bound for the entire package.

Unwise move for the newbie.

Another part of that plan should state how much risk you're willing to take. Be especially honest and consider your personality type. Some investors favor capital preservation, others lean toward maximum return in the shortest time. People differ in their tolerance for risk. Be sure you know yours.

You'll need to consider your available time commitment, establish a relationship with a lender, learn about the market, contracts, insurance, legal rights and requirements, tax consequences, and many other aspects of real estate investing.

If you still want to take the plunge — bravo! You can make a healthy additional income, or even a full time living, in what remains one of the soundest investments available. And, apart from what can be serious money — it's a great adventure!