Talk of the passive income, return on investment, stability, tax benefits, and appreciation of the property – the financial advantages of real estate investments can’t be denied.
However, if you are considering getting into the real estate game, you need to be aware of what you’re up against before jumping in with both feet.
1. Desirable Location
The location of your property is critical; it’s what will determine your overall success in the business. It affects how much rent you charge, the type of tenants who will apply, and your vacancy rate.
Owning rentals that are close to attractive amenities, convenient traffic routes, shopping, entertainment, safe neighborhood, and more will attract a steady flow of prospective tenants.
Therefore, before purchasing, do some research on the local school ratings, rental market shifts, job market, design trends, the rate of local crime, and any city codes that can affect your property.
2. Consider Starting Small
As with many things in life, it’s good to start small, especially for first-timers, to avoid learning tough lessons on the job. Any new business takes many dynamics, and it might be best to get your feet wet first.
By starting with a single duplex, apartment, or condo, you’ll have the opportunity to get acquainted with the process and weigh up whether real estate is something profitable for you and worth venturing into at a larger scale and long term.
“While at it’s foundation the real estate industry doesn’t change drastically from decade to decade, new technology continually is entering the market at an accelerating pace. More than ever we’re seeing a shift in how transactions across the real estate industry are controlled and managed.”
According to Jake Marmulstein, CEO at Groundbreaker “What that means is real estate investing, and portfolio managing is now much more accessible than it was even 10 years ago.”
3. Dealing With The Hidden Expenses
Depending on the type of commercial real estate you’re investing in, there are many hidden costs that you should know of. From licensing fees, inspections that must be carried out, and taxes associated with selling and buying investment properties.
It is thus essential to get in touch with your county to gather this information ahead of time.
You should also consider the maintenance needed (especially any deferred maintenance you may uncover during your due diligence) and the kind of insurance cover you’ll need for your property. Reviewing all these costs beforehand will help you determine if the investment is really working in your favor and worth it.
4. Income Vs. Capital Growth
Many real estate investors buy properties to earn an ongoing, passive income. Although the income will vary depending on several factors such as location and the nature of the property, a small profit can quickly be eaten by management and changes in the property market.
However, although small, the ongoing income can be used to sustain your monthly expenses or use it to acquire another property through a mortgage. In this approach, one property investment can blossom into many.
There are other real estate investors who focus on capital growth. That means that the income may only covers the mortgage payment; monthly income is not of much concern. These investors aim to hold onto the property until the value goes up, their equity builds up, and the property can be sold at a profit.
5. Future Appreciation Potential
The smartest investment is one that appreciates over time. Generally, most land appreciate little by little, but the aim is to have an investment that will appreciate better than the rest.
Go for an up-and-coming or an already desirable area with promising plans for development in the future. On the flipside, safe and quiet neighborhoods are best suited for families and can be just as desirable.
Consider the exact location of the rental home within the community. Is it on a private cul de sac or a highly active thoroughfare? Close to remarkable local schools or a highly populated urban environment? These are some of the things that will help tell your property’s appreciation potential.
Real estate investment is a lucrative and stable way to channel your finances and generate income. However, you need to make well-informed investment decisions amidst the overwhelming process and other challenges to earn significant profits!