Things You Must be Aware of Before Investing in Real Estate
Before committing your capital to real estate investment, you must be aware of these critical factors.
- Don’t wait, then buy, buy, then wait.
It’s common knowledge that real estate is an appreciating sector, so don’t wait till you have enough money to afford that expensive plot of land or house; look at the market and buy what you can afford for the time being.
Because if you wait till you can afford it, you will find that the price has skyrocketed and you can’t afford it anymore. So use what you have to invest.
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- Property Location
Each region has a different price range and if you are starting and don’t have a lot of starting capital, look for properties that do not need you to deposit much.
Also do a stock of how that area will be in some years to come, because people are developing fast and if it shows promise do not hesitate.
- Property valuation
Property valuation is essential during the purchase process as it informs you whether it’s a worthy investment. As there is no need to buy cheap property, you will spend thousands on renovations and improvements.
So, before making any purchase, you better compare prices and the situation of the properties in the areas, both new and old builds. Compare the cost so land and construction and the expected revenues if they are rentals.
- Expected returns
If you are purchasing a property for investment purposes, consider the investment returns after deducting all expenses.
So factor in the expected cash flow, property appreciation, and tax benefits, and deduct all the renovations and mortgage interest costs. This will give you the overall idea of whether the investment is worth it.
- Real estate laws
Before investing in real estate, you must educate yourself about the laws concerning the real estate market you plan to enter. Note that different areas (states) will have varying laws governing the buying and selling of properties and the taxes involved.
You better hire a lawyer to take you through the entire process to avoid paying fines or finding yourself on the wrong side of the law.
- Investment purpose and time horizon
Be clear on what you plan on doing with your property once you purchase because a lack of clear goals can bring about unpleasant results. So before committing, you need to set out your plan and follow it accordingly. For instance
- You can buy and use it; this way, you will save on the rent and maximize the property while improving it for equity appreciation.
- You can also choose to buy and lease; this way, you will have a regular income, and your property will appreciate in the long term. However, you will have to be more involved in maintenance, repairs, and vet the renters. Alternatively, you can procure the services of a property management company, but it will cut into your returns.
- You can also buy and sell (short-term and long-term). This is best for people who are looking for short to medium profits, as they build a house and after it is completed, they sell it at a profit.
- Indirect real estate investing
Buying physical properties is not everyone’s forte, so you can indirectly invest in real estate by buying shares such as REITs or publicly traded real estate investment trusts.
These investments are usually managed by experts in charge of purchasing, managing, and selling properties.
Then the revenue generated after selling is distributed to the investors as dividends. The good thing about indirect investing is that you liquidate your investments anytime you want; they are an excellent way to spread your portfolio and are suitable for beginners since you do not need capital to start.
- Credit score
If you want to start investing in real estate by taking out a mortgage plan, ensure that you have a good credit score. A good credit score guarantees better loan terms and adds up to substantial savings.
It should be over 800, and if it’s not, work on improving it by paying your bills and debts on time. Do not close unused credit cards and ensure that you are utilizing 30% of your credit. Review your credit report and fix the discrepancies.
Read Also: How to fix your bad credit score
- The state of the real estate market
Like any other investment, it is good to buy when the market is low and sell when high. So please keep track of the real estate market trends and their fluctuations. And when shopping for a mortgage rate, shop with several lenders and choose the one with the best terms.
So, keep yourself of the current foreclosures, flipping activity, new builds, home prices, and mortgage rates.
Strategies You Should Apply to be Successful in Investing in Real Estate
- Have enough savings and set up an emergency fund
- Build up your credit score
- Research about the local real estate market
- Start small and build up as you go along
Bottom Line
You can invest in real estate in various ways discussed above. And any person looking to diversify their investment portfolio can do so by investing in real estate.
Before getting started in real estate, you have to be clear about your goals and budget because chances are your first deal will be in REITs or crowdfunding rather than foreclosures or flipping.
Understand that investing is a learning process, and along the way, you will make mistakes, but don’t let them scare you away, learn from them and improve your investment game.
And with time, you will find yourself investing the high-risk, high-return real estates projects like flipping houses or Real Estate Investment Groups (REIGs)
