Real estate investment is an excellent option for those who want to earn big. Look at the famous Kylie Jenner- she made up her mind and started investing in real estate even before she was an adult! The size of the real estate market has increased globally from $9.6 trillion in 2019 to $10.5 trillion in 2020!
But recklessly spending in this field can prove to be much worse than you’d imagine. In case you’re confused regarding how to go about investing in real estate, we have a list for you. These are some things to keep in mind before you spend your money here.
1. Property location
One of the key factors to keep in mind is the location of the plot you’re planning to invest in. Is it located far from hospitals or markets? Does it have an airport or train station near?
Mobility to nearby markets, warehouses, freeways, or tax-exempt areas play an important role in deciding the commercial value of a property. One thing to also keep in mind is the long-term development of the area where the plot is located. Pinetop-Lakeside AZ homes for sale range in size and shape from mountain estates to smaller cozy cabins.
For example, the plot that is surrounded by greenery and shrubs today may turn into a bustling manufacturing neighborhood tomorrow, thereby reducing its value.
You can try contacting public agencies in that locality or the town hall to understand better regarding the area’s development. This will give you an insight regarding whether to invest a hefty sum here or not.
2. Valuation of the property
Valuation of the property is another important factor to consider while compiling the list price, purchase, investment analysis, and insurance. Some commonly used real estate valuation techniques are:
Sales comparison approach- Recent comparable sales of properties that have similar characteristics to the one you’re planning to buy.
Cost approach- Cost of land and construction, minus the depreciation (suitable for new construction).
Income approach- This is more suitable for rental properties. It is based on the inflow of cash expected.
3. Investment purpose and horizon
The real estate business tends to run on low liquidity and high values. So if your investment strategy is weak, you can end up in huge financial debt. There are various types of purposes for which you can buy real estate. Some of them are given below:
Buy and self-use: You can save on rent and utilize it the way you want to.
Buy and lease: This method offers regular income as well as long-term value appreciation. But as a landlord, you’ll have to take care of property disputes, repair works, and tenant management.
Buy and sell (short term): This offers quick and small-to-medium levels of profit. The property is under construction and the profit after being sold is earned upon completion.
Buy and sell (long term)- This focuses on large intrinsic values over long periods of time.
4. Expected cash flows and profit opportunities
Cash flow refers to the amount of money left after spending. If the cash flow is positive, it means the rate of return on the property investment is going to be good. You can expect cash flow from either rental incomes or an increase in the intrinsic value of a property.
When you take loans for investment in real estate, you must be careful. Loans of such large amounts can be tough to handle. In a worst-case scenario, bankruptcy can also be a possible outcome if your investment fails.
So decide on the kind of mortgage you want to fix your focus on- whether it’s fixed-rate mortgages or adjustable ones. For each type of mortgage, you have to study the risk profiles too. Be aware of the terms and conditions laid down by the mortgage lender.
In case you’re not satisfied, look around to find where you can get lower rates of interest or better terms and conditions.
Over to you…
While buying real estate and developing a business out of it, these are some of the most important factors you should consider. Carefully study each parameter and be aware of the market rates and charges.
Today with the rise of prop tech, gathering information is as easy as it can get. Once you’re equipped with the desired information and confident in your approach, the rest will be easy to figure out.