Newbies, Stop Asking This Question First And Ask This Instead

As a member of BiggerPockets, I like to participate in the forums by both asking and answering questions there. One very common question that I see in the forums by newer investors is asked in various ways but really comes down to this: How do I get started investing in real estate?

This is a loaded question that is not easily answered. However, in my experience as an investor in the stock market and in real estate, I believe this can only be answered by asking yourself the following questions:

What is your “why” in investing in real estate?

What goals do you need to accomplish your “why”?

Are you investing for cash flow or appreciation?

Do you need cash flow now?

What is your “why” in investing in real estate?

This is the core reason to invest in the first place. What is it that will get you up every morning to push and grind your way? This “why” must be deep-rooted enough to motivate you to act each and every day and no matter what obstacle lies in your path. If it isn’t a compelling reason, then when you face the many obstacles in investing, and believe me there will be many, you will just give up.

What goals do you need to accomplish your “why”?

With your burning “why” answered, what goals are needed to accomplish that why? This is typically some sort of monetary goal for you to focus on. Goal setting can be an entire post on its own. With all goal setting, you should ensure they are S.M.A.R.T. goals:

S - Specific

M - Measurable

A - Attainable

R - Reasonable (or relevant or realistic)

T - Time-bound

If your goal does not meet the five criteria above then it is not a goal.

Your goals must begin with the end in mind--the ultimate goal when your “why” is accomplished. From there, you work backwards setting sub-goals until you get to today.

Are you investing for cash flow or appreciation?

This will be answered depending on your “why”. This must be decided before you begin investing. If you want the extra income through cash flow now and buy in markets with low cash flow and higher appreciation upside, then that does not fit with your investing criteria.

Depending on what you favor will lead you to different markets. For example, you are not going to invest in San Francisco, California if you are looking for primarily cash flow. You are likely not going to invest in Dayton, Ohio primarily for appreciation.

Do you need cash flow now?

This piggy-backs on the previous question about cash flow. Once you close on your property, are you expecting immediate cash flow? If the property you are purchasing needs rehab before you can place a tenant for it to cash flow, then you should set appropriate expectations on the property. Maybe the property has tenants, but are not paying market rents. In this case, it could be as easy as raising them as soon as you take over the property or you may need to evict and rehab before placing a new tenant.

By answering the four questions above, this will help you as a beginner real estate investor get a better idea of what and where you should be investing. This will get you down to your deep-rooted why and keep you motivated to press forward through the ups and downs of real estate investing.