One of the most popular types of investment is real estate. This is where you buy, own and proceed to manage a property with the objective of profit. Many people flock to invest in real estate. This is because the general trend of property is that it increases in value. As such, your returns are more or less guaranteed over some time. However, real estate has limited initial cash returns when compared to other forms of investment. It also requires intensive capital to begin and a high cash flow to maintain. It is important for you to understand these factors before you invest in real estate. In addition to those, here are 10 important elements to consider when investing in a property.
The type of property which you want to focus on
There are 4 main types of real estate property. These are residential, industrial, retail and commercial real estate. Residential real estate is the safest type to invest in. This is because the rate of return is literally guaranteed. One of the basic human needs is shelter and people will always search for houses to live in. Thus, you are always bound to find tenants for your residential property. However, residential real estate has a lower profit margin when compared to the other types. Commercial, retail and industrial properties offer a more significant profit margin. However, there is a much higher risk of vacancy or no payment of rent during tough economic times. Thus, it is important to know which type of property you intend to invest in as you consider this venture.
Your personal income should be stable
Investing in real estate is a financial commitment. Initially, it can take more from you than it gives back. Therefore, you need to ensure that you have a stable income to help you weather the financially challenging period between your purchase and your sale of a property. A rule of thumb is to check if you are currently operating with surplus cash. Also, make a financial projection of the next six months of your life. Will your income still be stable during this period? If the answer is yes, then you are financially healthy enough to make a real estate investment. If not, fix your personal finances first.
How much money do you need to perform property investment?
Real estate investment is quite capital intensive. You need to have substantial amounts of money to maintain property investments before you sell them. If you buy a house with the intention of selling it, you may be forced to make some renovations prior to sale. Moreover, if you are buying a house which is in foreclosure, you need to have some money to pay its mortgage. Thus, as you get into real estate investment, one of the elements to consider is your available cash. You should have access to large amounts of money so as to stay afloat before making a profit in your real estate ventures. You can get some financing through investment loans from your bank or a special type of loan known as the FHA 203(k) loan.
What is your current credit score?
Your personal credit score normally affects the type of mortgage which you get. This score is an important element which affects the interest rate that you get for your mortgages. Just a few points up or down on your credit score can make a thousand dollar difference in your mortgage. Therefore, before you take out a mortgage as part of investing in some residential real state, ensure that you have a favorable credit score. If it is okay, then you can go ahead. If not, find a way to raise it.
Pick the right mortgage arrangement
Sometimes, you may take out a mortgage on a house as you perform some residential real estate investment on it. This is especially in the case where you are flipping a house after holding it for a short time. It also applies if you intend to live in the house you have purchased for a short period of time before you sell it. In such a case, the best type of mortgage to utilize is the adjustable rate mortgage. This type of mortgage has a low initial rate which is fixed for half a decade. After that period of time, it is adjusted and increased. In addition to that, the adjustable rate mortgage is usually more affordable than the fixed rate mortgage. Therefore, you can invest in some residential real estate using an adjustable rate mortgage and then flip the house before the first adjustment. This allows you to make a handsome return. However, if you intend to make a long term investment, then the fixed rate mortgage is advisable.
Location is very important
In the world of property investment, it is always about location. The location of your investment is the most important element to consider. Always perform thorough research on the area where you are planning to invest. Is it safe? Are there transportation hubs around it? Are there commercial centers located around it? How about education centers? Always consider these factors before you invest in a property.
The characteristics of the property
The condition of the property which you intend to purchase is a very important factor to consider. Attractive plots of land or houses are normally surrounded by nice infrastructure such as tarmac roads, street lights, good drainage systems and well-built pavements. Also, attractive houses normally have a good layout, structural integrity, an open floor plan and accessories such as balconies and barbecue spots in the outdoor patio. These are the features to search for when making a real estate investment. This is because the characteristics of a plot of land or a house can attract or repel tenants. As such, go for those which have attractive features so as to get a handsome return.
Consider the perspective of your target tenant
In business, the customer is always right. This principle also applies to real estate. If you are developing a house so as to rent it out or sell it, consider the perspective of your target tenant. Ask yourself what they would find attractive and then apply it in your development. If you are investing in a plot of land so as to sell it later, you can also apply this element. What would a potential buyer like about it? This will help you to make strategic improvements which will attract buyers and guarantee you a good return.
The type of tenant
Not many residential real estate investors consider the type of tenant they want. Many simply want one who pays their rent on time. However, there is a lot more to a tenant than just being able to pay their rent on time. The type of tenant who you accept is an important element to consider. You need to search for a tenant who has a good rental background, is honest, mature and disciplined. You can make some time to interview tenants before you allow them to live in your property. This ensures that you will have a problem-free residential investment.
The current condition of the real estate market
Conditions in the property market change from time to time. If you are selling a house, high property prices are a good condition. On the other hand, if the property prices are low, it is a good time to buy and a bad one to sell. Thus, before you invest in some real estate, perform some research in that area to find out the prevailing market conditions. They are a very important element of real estate investment.
The Important Take Away
Real estate investment can be very rewarding. People such as Donald Trump have made a fortune investing in real estate. If you want to join the ranks of successful real estate investors, the elements above are the ones which you should actively consider. They can make the difference between a few thousands in returns or billions.