In today’s economy, it seems like we’re feeling more pressure than ever. It’s not just about the tumult in the real estate market but the volatility of stocks, the ever-growing cost of living, and increasing economic uncertainties.
When you’re looking for ways to secure wealth – not just now, but for the future and future generations – protecting that wealth is paramount.
While we generally refer to real estate investment, you can apply these rules to just about any asset you have. We’re sure you could develop a hundred rules like these, but we want to make it as simple as possible. Make sure your efforts aren’t in vain – follow these essential guidelines!
The Top 3 Rules for Protecting Your Investment Assets
Rule #1: Practice Ongoing Due Diligence
The term “due diligence” gets thrown around in real estate investment all the time, but it might seem a bit too vague for new investors. Due diligence is extensive and all-encompassing, which makes it overwhelming at times. It affects literally everything.
So, what exactly is due diligence?
Due diligence is the process of research, analysis, and questioning that mitigates investment risk. The thing to remember is that due diligence is an ongoing and evolving process. For the sake of brevity, here are just a few ways due diligence comes into play before you invest, buy a property, and throughout your investing career.
These line items may vary depending on your investment strategy, use of property management or turnkey partners, and other variables.
Before you invest:
- Evaluate your assets, financial goals, and risk tolerance.
- Consult a portfolio or financial advisor.
- Calculate KPIs and other valuable benchmarks for performance. This includes knowing how much you should spend on a property and make in rent for a solid price-to-income ratio.
- Determine your desired investment strategy based on your goals.
- Investigate various vendors and partners. This includes calling or meeting, researching reviews and testimonials, asking tough questions, and reviewing annual reports and performance metrics.
- Research and narrow down investment markets.
- Develop attainable short- and long-term goals.
- Secure a business structure (such as an LLC or through an SDIRA) and open appropriate business accounts.
When buying a property:
- Research the neighborhood and area amenities.
- Review historic property values.
- Assess environmental risks and insurance needs.
- Have the property appropriately inspected and identify issues.
- Develop a plan to address problems and renovations.
- Calculate the down payment and work with a lender to secure financing.
- Line up property management and residents.
All throughout the process:
- Evaluate property performance each month.
- Reassess and adjust your portfolio based on changing needs and priorities.
- Prioritize management and property maintenance.
- Save and plan for future acquisitions.
- Adjust estate planning and exit strategies as needed.
Due diligence is putting your proverbial ducks in a row – ensuring you don’t get bamboozled by unexpected costs, unforeseen disasters, or poorly considered decisions.
Rule #2: Maintain an Appropriate Safety Net
Though technically part of due diligence, this task demands its own rule. No matter what you invest in, prepare to incur costs. Maintenance, turnover, insurance costs, repairs and renovations, and property taxes all play a role in real estate investing. And while your rental income will mitigate many costs, they don’t necessarily account for everything.
Investors should maintain a safety net that gives them peace of mind. This amount should scale with the number of properties you own. This is about being prepared. It will prevent you from deferring something important or otherwise jeopardizing your assets.
Rule #3: Plan for the Future
Finally, investors must plan for the future. Ask yourself these vital questions:
- How long am I planning to hold my investment property? What conditions must be met for me to consider selling?
- After I’m gone, what will happen to my assets? Have I appropriately designated my heirs?
- Are my assets included in a structure that mitigates the tax burden on my family?
- What other exit strategies are on the table?
For many investors, this business isn’t just about retirement or financial independence – though those are wonderful ambitions. For many, this is about family. We’re working to establish generational wealth and a legacy that blesses our families for decades, even centuries after we’re gone.
We recommend all investors work with a lawyer or estate planner to keep an updated will. Ensure the right people are on your accounts and documents. This isn’t a one-and-done task. You’ll need to revisit and adjust your estate plans throughout the years!
Feeling overwhelmed?
Your REI Nation advisor is waiting to make it simple to invest in real estate.
