Founders Grove Insights

The Top 3 Financial Questions to Ask Yourself before Investing in Real Estate

written by Ryan Cox

Before you get too far in the investment process, you should take the time to figure out what kind of investment you’re looking for and what you’re looking to get out of it. Often, the first step in that evaluation is to consider considering one’s finances and what kind of financial outcomes you’re comfortable with. To develop a more in-depth understanding of what you want out of your investment, try asking yourself these three questions.

1. Am I looking for an active or passive investment?

In an active investment, the investor acquires and manages the property and is the party that collects rent from tenants. In a passive investment, the investor invests through real estate professionals, like Founders Grove, who acquire and manage properties on your behalf. There are advantages to both types of investments, but the choice between the two comes down to how involved you want to be in the day-to-day management of the property.

2. Am I looking for a long-term investment or a short-term investment?

Long-term investments can be extremely profitable, but investors must be able to wait out any market fluctuations to see the kind of returns expected. If you’re looking for a way out should investment conditions become unfavorable or if you’re unable to wait for the kind of returns you’re looking for, you should potentially consider a short-term investment.

Another thing to consider is liquidity. Will you need your money back before it naturally liquidates, or are you willing to wait for greater potential returns in the long term? If you’re unable to wait, then you should look into short-term investments.

3. How much risk am I willing to accept?

Depending on how well it’s managed, a property can routinely generate an over 10% annual return. However, these are just projections based on a series of assumptions. If these assumptions turn out to be incorrect and projections are not met, how would it affect you financially? How much you can afford to lose? Be honest with yourself about how much risk you’re willing to accept as you look through investments, and choose an investment that aligns with that risk level.

As you ask yourself these questions, you may find that you need more insight into the investment process or more background information on multi-family properties. To find out more, contact Founders Grove to set up a strategy session and let us help you determine which kind of property works for you