Last edition we talked about whether investing in real estate is right for you. Assuming you’ve decided it is, then the next consideration is what are your real estate investing goals. When we bought our first two properties we were quitting our jobs to move to Toronto from BC. I was going to do my MBA and Dave was going to find a new job. My goal was to make my money work for me while I was in school.
Why is it so important to know what your real estate investing goals are? In order to figure out what type of property you are looking for you will need to know what exactly you want to get from real estate investing. Are you looking for monthly positive cashflow, longterm appreciation and equity building, or a combination? Are you interested in investing for the long term or the short term? How much time do you have and what is your risk tolerance?
Before you can determine your property type, it’s necessary to assess your current financial state and understand what you are trying to achieve and what is possible.
Your Five Year Plan – Goal Setting
This is a technique we use over and over. Sit down right now and write down:
- Where you want to be financially in five years (be specific, for example do you want to be earning $100,000/year in your job, own two properties that are giving you $500/month in positive income, and have $20,000 in RRSPs)?
- What can you do in the next 12 months to achieve each of the above items (once again, be specific and try and make the items measurable)?
- What can you do in the next six months to move towards your 12 month goals?
- What must you achieve this month to move towards your 6 and 12 month goals?
- Review these goals regularly. We used to do it monthly, but now we just do it quarterly. Find what works for you, and stick with it.
We will leave how to achieve your goals aside for now, and just focus on finding a property type to help you move forward in your real estate goals. Some initial considerations before you begin a property search:
- Will you live in one of the rental units or will you be an absentee landlord?
- Do you have any savings to use for the purchase (or can you use your RRSP’s as part of the first time Home Buyer’s Plan)?
- What size of mortgage can you qualify for?
- What is your risk tolerance?
- How much spare time do you have to devote to the property?
- Do you have any construction/renovation knowledge (or know somebody that does)?
- Will you manage the property yourself, or will you hire a property manager?
- Can you afford to supplement the property monthly if necessary?
Think carefully about your answers, as each one has an impact on your choice of property. For now, let’s focus on the very first decision: Living in the building with your rental unit or being an absentee landlord.