Beginning Real Estate InvestingAre You Ready Financially? Before beginning real estate investing you need to examine where you are financially. Take a piece of paper and draw a line down the middle. Write "Assets" at the top of the left page and "Liabilities" at the top of the right. Start with the left side and list out all of the assets you have and their fair market value. List your home's appraised value, automobiles, boats, cash in savings accounts, any stocks you may have, IRA's, 401(k)'s, etc. Then on the right side list out all of your liabilities. This would be any money that you owe such as your home's mortgage, boat loan, car loan, student loan, credit card debt, etc. Now tally up both columns and then subtract the total assets from the total liabilities. This number is your net worth! Hopefully it is a positive number. If not, consider paying off some debt before beginning real estate investing.
One thing I will point out, although I agree with their wealth equation, I think it applies more truly to people over 40 years old. The younger you are the harder it will be to hit that target. So don't get discouraged if you are 30 years old and making $60,000 per year and your net worth isn't $180,000 (30 x $60,000 divided by 10). As a side note, a lot of people fluff up their net worth by doing things like inflating the fair market value of their assets. Remember to KEEP IT REAL! Now, net worth is great but what also is important is your cash flow. So let's take a look at that. You will need to keep track of all your expenses for a typical month. Add those up and compare against how much you bring in as income. Hopefully you are living on no more than 90% of your after tax money. That is difficult for a lot of people, but it's important to be putting some money away. That is going to be your investment money. Beginning real estate investing is much simpler if you have some savings. I think it is much easier if you are only living on 70-80% and if you are living on less than that, well Congratulations!!! You are a very thrifty person! As you are analyzing your finances, check your credit score.
Now, let's get it all straight. If you are beginning real estate investing and you are young or broke or whatever and you are frustrated because you hear guys like me say it is possible, let me tell you how I did it. I'm going to go back to the time of my beginning real estate investing days to explain. First of all, I had good credit. I talk about credit in
part two
so I won't go into too much detail here. But if you want to get a headstart, click here to get your Free Credit Score Secondly, I had a healthy debt to income ratio. In other words, even though I wasn't making a ton of money, I didn't have a lot of debt eating up my income. A healthy debt-to-income ratio is around 30%. So for example, if you gross $4,000 a month in income then your total debt payments shouldn't be more than $1,200 (30% of $4,000). You maintain a healthy debt-to-income ratio by avoiding credit card debt, getting student loans paid off, not buying too much house, and not having other frivolous debt such as car loans, boat loans, etc. Thirdly, I basically lived like a tight wad. This ties in with point number two, but not only did I not have a lot of bad debt, I also didn't spend money on other things such as eating out. I saved money and had adequate cash reserves in savings. You should have 6 months cash reserves in savings before beginning real estate investing. Fourthly, I had educated myself. I read books, read websites, attended a seminar, and talked with countless investors. You must educate yourself about the aspects of real estate investing. This is what I did to get my first investment. Now, I have many more investments and I am growing my wealth each and every month. You can do the same. It takes dedication, sacrifice, and a strong yearning to succeed. Do you have what it takes? |
According to the famous book 
a good measure of your net worth is to take your age multiplied by your income and then divide by ten. If you are at least hitting that number you are doing good. 
