Real estate investment has become very popular in the last 3 decades with more people seeking information on real estate investment. This is due to its excellent returns and tax advantages. It’s the new way of creating wealth. But like any other business, real estate has its ups and downs that may get complicated to navigate. You need necessarily skills, experience and education to get through some of these challenges.
Investing in real estate requires a lot of learning and researching considering the risks that you will be exposed to. Also, it requires high capital to and intense cash flow to maintain. Even after that, you will have to be patient before the business picks up. If you are a first-timer, you are likely to feel overwhelmed by the process and waiting.
While there is a lot to consider before investing in real estate, the following are some of the key factors you should consider to have a smooth run:
In the real estate industry, location is a key factor to consider for profitability. Location sales. You don’t expect to have a vacation house in a remote area and look forward to making a sale. Proximity amenities, infrastructure, neighbourhood status, peaceful environment etc will always affect your investment. Choose location first then property second, this works magic in the industry.
When buying an investment property, always have the long term goal in your mind? What will be the purpose of the property? What would be the prospects looking for? The answers to this will always determine your investment location.
- Type of property to invest
Do you have an idea of the types of properties in real estate? There are 4 types of properties:
- Residential real estate
- Commercial real estate
- Industrial real estate
- Retail real estate
You have to know which one of the types that would give you the best returns. .For years, residential properties have been the only property that has guaranteed returns. People will always be on the lookout for houses since it’s a basic need. This means that there will be clients throughout the year compared to other property types. However, residential properties have a lower profit compared to the other properties. Their only problem is the long duration before they are bought.
- Down payment differences
The down payment when you are buying an investment property differs from when you are buying your family home. For a family home, you will be required to make a down payment between 1-10% while when buying an investment property, you will be required to pay 15-20% payment.
investment properties don’t qualify for mortgages insurance. Also, if you will need financing, there will be more strict requirements before your loan is approved. This explains the higher percentage needed for a down payment. It’s advisable to analyze all your financial details before looking for a property so that you may know if you are qualified for a mortgage.
Investing in real estate is not only about making profits. You will encounter expenses along the way. Some expenses are fixed, others are variables. While it’s not possible to proactively account for all these expenses, you can estimate an annual budget that shall be set aside for these expenses. You may use the aid of fixed expenses to come up with a budget. These fixed expenses include:
- Property taxes
- Service charge
- homeowner’s insurance
- Annual property management expenses
Since variable expenses are hard to predict, always allocate additional money to cater for repairs and unexpected costs.
- Property management
Do you want to manage the property on your own or use a property management company? managing your investment by your own means that you will be directly engaging with the renters acting as the landlord. Also, complaints and recommendations will be directly forwarded to you. You will again be needed to market your property and attract new tenants.
On the other hand, a management company can do all the tasks for you including collecting rent, handling complaints, marketing your property, maintaining old tenants etc.. but all this will come at a cost. Property management companies will require a salary which is 6% of the profit made. This will be an added cost to the already overwhelming expenses.
In this case, you will need to do more research to determine which of the two property management options should work for you.