Are you looking to add real estate properties into your investment portfolio? Although it may seem like a hard sector to access, you can’t deny how investing in property has the potential to provide you with a strong financial return. If your investment turns out to be a success, then you might gain passive income for the next few years.
Since you’ll have to spend a good amount of cash investing in the real estate market, you must take into account a variety of factors to ensure a positive return. If you’re a first-time investor who’s having a hard time understanding how property investments work, here are five things to consider before investing in property, which you can use as a guide in making crucial financial decisions:
Determine Your Purpose For Investing In Property
You have to be smart with every financial decision you make, so keep in mind to never let emotions get the better of you when purchasing property. The first thing to consider before pushing through with your investment is to determine exactly what your purpose really is for buying. By doing so, you might be able to gain more clarity on which options you should consider to match your needs.
For instance, identifying which type of property you might want to focus on would help you narrow down your property investment goals. The most common types of property include industrial, residential, commercial, and retail real estate. Choose the appropriate type of property depending on what you’re planning to venture on and how much profit margin you’re expecting to gain. Among these four, residential real estate might provide you with a much stable yet lower profit margin.
But if you’re not the type who puts in a lot of work with investments, then you might want to consider investing in mortgage notes instead. With this type of investment, you’ll be tied to a borrower through a contract where the trust deed or mortgage deed would be first placed under your name as a security until the debt is paid off. If your purpose for investing in property is to have passive income that offers you much liquidity, then this might be a good option to consider.
Be Ready To Research The Market
As with any type of investment, doing proper research is crucial prior to entering your target market. You have to assess the current real estate landscape of your target area by looking at several factors—whether the house prices are falling or rising, which locations are doing well in terms of potential demand, which property type is performing well, and whether the interest rates are increasing or not.
When doing your research, it’s not necessary that you spend weeks viewing each of your prospect sites personally. You’ll be surprised at how technology has been changing the real estate industry recently. Today, you can see listings of available properties online instead of being limited to printed ads only. There are also some agents or sellers who can offer virtual real estate tours where you’ll be allowed a 360-degree view of the property you’ve been researching.
Consider Your Budget And Current Cash Flow
You should always consider your budget and current cash flow when committing to large investments such as this. Avoid going overboard and only invest on a property that you can afford. Here are some things that you have to check first prior to calling your trusted real-estate agency:
Sort out your finances
This is probably the most important financial factor you have to consider prior to investing in a type of property. Be sure that you’re being realistic when choosing the type of property you’ll be investing on. Start sorting out your finances by listing your current cash flow, financial commitments such as bills and debts, and, of course, your allotted budget for investing.
Check your credit score
If you’re planning to take out a mortgage for your real estate investment, then make it a priority to check your credit report and current credit score. Understanding that your credit score determines how much mortgage you’ll be allowed to take out will help you significantly in the future as you purchase your property.
If your current credit score isn’t performing well, then you’ll have to prioritize raising it before applying for a mortgage. Also, you should make it a habit to check your credit report at least once a year to fix any errors that may have impacted your low credit rating.
Take into account all additional costs associated to buying a property
When purchasing a property, there will always be additional costs that you have to take into account when setting a budget. These possible initial costs may include fees you have to pay for your real estate agency, renovations, and furnishings for your property. However, there are also future costs that you have to consider, including property taxes and expenses for managing your property.
Desired Property Location
As mentioned earlier, your desired property’s location is a vital thing to consider when investing in real estate. For instance, if you’re looking for a vacation rental house, then you might want to find a property near a beach or a mountain, whereas if you’re looking to turn your property into a business or an office, then you might want to get a bigger space that’s within the metro.
Investing in a good property location may increase your chances of getting a better return on investment. For a vacation rental house, for example, it’s still important that you consider potential demand by monitoring whether your target location has a high tourism rate. It’s also a good idea to consider investing in areas with a proven track record of properties increasing in value.
Real Estate Laws
When purchasing any type of property, whether it be for investment or personal purposes, you have to take the steps in learning the laws that cover the real estate market you’re planning to enter. Different locations will always have different laws supervising the buying and selling of real estate properties. Tax values, for instance, vary differently from one state to another.
If you’re not confident about your knowledge on real estate laws, then you might have to consider hiring a lawyer instead. Be sure to hire a reliable lawyer who’d be willing to guide you through the entire process, help you familiarize yourself with the ins and outs of property investing, and help you avoid any potential inconveniences that may come your way.
Is It A Good Time To Invest In Property Now?
Just like any other investment, there’s really no guaranteeing which time is perfect for investing. However, equipping yourself with the knowledge on how to invest properly in the real estate market could save you from so much trouble. Hopefully, the five things mentioned above would guide you on deciding whether it’s finally time to invest in the real estate market.
Make sure that you’ve first determined your property investment goals among many others. Do your research by taking into account your goals, finances, and your desired property location. If you’ve finally decided to invest in property, you should also consider the real estate laws that fall under your target investment. By following these, you might even find investing in property enjoyable.