Crucial Factors You Need to Consider When Investing in a Real Estate Property
Real estate is one of the most profitable ways in which to invest your savings. However, it requires knowledge and patience. Knowledge is acquired through the necessary study, and patience is obtained by controlling your emotions.
Here below are seven crucial factors that you must consider before venturing out in this journey.
Cost and Funds
Capital is crucial to real estate investment. So, when planning your venture you need to consider the different ways to obtain the necessary funds. For example, you could use your personal savings, associate yourself with friends who can also contribute to a fund pool, or consider a lending institution.
Moreover, before buying a property, you need to estimate all included costs, such as insurance, down-payment, loan interest, and transfer costs. Also consider 10% to 20% in hidden costs, which include repairs or upgrades you may need to do, telephone calls, trips, etc. In this manner, you will know if the property is within your reach.
Research is key to any good investment, as it leads to informed decisions that will generate results. Factors to be researched include the type of property, the type of client, the expected returns, costs involved and many more. At present, thanks to the Internet, there are many resources available online.
Also, study different options, such as real estate investment groups and hiring a property manager. Go and Google your concerns, and only start investing once you have the necessary knowledge to make intelligent decisions.
Type of Property
Before embarking into real estate investment, you need to have a clear idea of what kind of property you prefer. There are three main types of investment properties, each of them with its own special characteristics: residential, commercial and industrial. Each class has different subtypes. For example, the most common residential type is single-family homes.
However, you could also consider condominiums, townhouses, vacation homes, etc. Besides, when choosing the type of property, you need to think about the customer type, which could be low-income family homes, high-value homes and luxury estates.
It is a good idea to specialize in one kind of property only, as it makes it easier to master the necessary knowledge.
The estimated value of a property is its potential selling price, and it is determined by market factors and other considerations. It is very important to estimate this value as accurately as possible, as it can lead to great business decisions.
In addition, estimate a projection of the property’s value in time, and in order to spot good opportunities investigate aspects such as upcoming developments in the area and proximities, which may influence its future value.
Lenders Mortgage Insurance
Lenders mortgage insurance or LMI is a cover that protects the lender when your down-payment is below a certain percentage, usually 20%. It is very important that you have a clear idea of the implications of this insurance, as you may be required to repay a certain amount of money, even after the property was repossessed and sold.
Use one of the many calculators available online to estimate your LMI cost. However, remember that there are several ways to avoid this cost, such as paying a high initial amount, or having a second mortgage.
Location factors vary with the type of property. For example, key aspects of residential real estate include the availability of amenities, schools and Internet, neighborhood status, security, public transport facilities, etc.
Commercial property may include factors such as tax-exempt areas, proximity to markets, freeways, and many others. Similarly, industrial property aspects may include proximity to ports, special economic zones and labor availability.
Emotions are many times ignored by potential investors, and their improper management can lead to business disasters. Don’t let them affect your decisions. Think purely in business terms, and make informed decisions.
Once you have decided on a property, don’t let your excitement control you. Remember, real estate is a long-term investment type, and the market has its ups and downs. Have a clear vision and be loyal to it.
Real estate investment can lead to great fortunes. However, it requires the consideration of several essential factors. The good news is that by doing the necessary homework, you can become a successful investor. As former US president Franklin D. Roosevelt once explained:
Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.