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Important Factors for Real Estate Investing

Important Factors for Real Estate Investing

When considering going into real estate, we’re always advised to look at location as a prime factor. However, other key factors are also required to ensure that the investment is best for you. Check out these vital things to weigh if you aim to invest in the real estate market.

1. Location of the Property

We can never ignore the importance of location as a chief factor when seeking profits from your real estate investment. You can see how people assess the amenities, views, and status of a neighborhood in terms of evaluating residential property valuations. 

For commercial properties, being near transport centers, freeways and tax-free zones also make a property more attractive.

When deciding upon a property’s location, it’s crucial to take the mid-to-long-term perspective in terms of the future progress of an area over your investment time frame. 

Imagine investing in a sizable lot when the surrounding area transforms into an entertainment district later. This could lead to more earnings. It’s best to be aware of how certain areas will be utilized before investing in them.

A great strategy to acquire solid information is to drop by the local town hall or offices in charge of urban planning. You will gain a good idea of how certain neighborhoods will be affected by long-term city planning. This enables you to make the right decision before you purchase real estate.

2. Valuation of the Real Estate

How a property is valued is critical for your financing. The listing price, purchase amount, insurance, taxation, and investment analysis are all affected by the valuation of the property.

kitchen with large window and green pumpkin as centerpiece

Seek out information using the following real estate valuation methods:

  • Sales comparison approach. Check the latest sales of properties with similar features. This works for both old and new real estate.
  • Cost approach. The price of the land and construction less the depreciation is used for new construction.
  • Income approach. Assess potential cash income. This works best for rentals

3. Purpose and Horizon of Investment

Since purchasing real estate requires a huge initial capital outlay and it can take time to liquidate this asset, it’s important to have a clear purpose for investing. Otherwise, financial stress looms ahead, especially if your property investment is still under a mortgage loan.

Look at these categories to find which one is compatible with your objectives. After which, you can plan well:

  • Buy and self-use. If you want to channel your rent money to own a property instead. Over time, your property also provides the benefit of appreciating in value.
  • Buy and lease. This can be a good source of a steady income and also lets you enjoy value appreciation if you hold it for a longer time period. But it requires being prepared to be a landlord and dealing with tenant concerns, property maintenance, and marketing.
  • Buy and sell (short-term). For those looking to cash in quickly with a small to medium profit goal. This is achieved by selling a newly built property for a tidy profit upon its completion.
  • Buy and sell (long-term). Centering on the huge intrinsic value of the real estate for a long period and can go alongside long-term objectives, such as retirement.

4. Opportunities to Profit and Predicted Cash Flows

In general, cash flow is the money left over after paying off your expenses. You’ll know you have a good property investment if it produces a positive cash flow. 

person holding many fanned out 100 dollar bills

Take time to make projections for these kinds of profits and expenses: 

  • Expected cash flow coming in from your rent income
  • Expected rise in intrinsic value when you hold real estate for a longer time period to benefit from high price appreciation
  • Benefits of depreciation
  • Cost-benefit analysis of property renovation prior to selling it to obtain a higher price
  • Cost-benefit analysis of mortgaged loans vs value appreciation

5. Exercise Caution When It Comes to Leverage

Though loans can be obtained easily and can be a convenient source of additional financing, there can be a huge cost to it. To begin with, you’re offering your future income at the price of paying interest over several years. 

Take time to think about managing these kinds of loans to keep yourself from being chained to high debt, commonly known as over-leverage. This leads to more risks especially when the market is in a downturn and liquidity is low. It can even lead to real estate projects not pushing through as planned.

In relation to your present and expected earnings in the future, you should weigh the following: 

person holding money and typing on calculator

●     Mortgage type that’s suited to your individual situation, in terms of rates if you prefer a fixed-rate, adjustable-rate mortgage, interest-only, or no down payment. Different mortgages have their own corresponding risks and this needs a detailed study. 

●     Evaluate the terms, conditions, and fees collected by the mortgage lender

●     Look around to discover lower interest rates and better terms

6. Check Your Credit Score

Know how much your credit score has an impact when it comes to the approval of a mortgage and the terms that the lender provides. A high credit score results in better terms, multiplying your savings over the long term. 

If your credit score is beyond 800 then this is marked as excellent and can lead to the best mortgage offers. To gain a good credit score, it’s recommended to:

  • Make timely bill payments - you can also consider setting up an automatic payment setup 
  • Pay your debt
  • Avoid over-utilizing your credit past 30%
  • Refrain from closing unused credit cards, provided no annual fees are charged
  • Try not to make requests for new credit and do “hard” inquiries
  • Thoroughly check your credit report and ensure all items are accurate

Bottom Line

Making real estate a part of your investment creates a well-diversified portfolio. Its performance has no direct connection with other assets, such as stocks. At times, stocks can perform poorly while real estate can be up. 

Investing in real estate also allows you to generate regular cash flow, benefit from property appreciation, and maximize tax advantages. Thus, it’s an excellent type of investment. But like any other form of investment, it’s worthwhile to review vital factors, included in this article before fully immersing in real estate investment.

Get in touch with us at Income Realty Corporation and let us help!