Real estate investing surely has some favorable condition comparatively to the other investments. It has low risk along with high reward but it also comes with some restrictions. The ease of entry and exit in real estate market is quite tough. In spite of these difficulties, investors are quite interested in financing in this market. But before investing your funds in this business, let's know some of the major factors which must be taken into consideration.
1. Property's location
If you want to earn profit from your investment in real estate, you can not ignore the importance of the Property's location. When a residential property is going for evaluation, there are some factors which are taken into consideration like – peaceful local area, amenities, neighborhood facilities, scenic beauties etc. Other factors includes nearby shops & markets, easy transport platforms, long freeways, tax-free areas, etc.
The locality might be evolve during the investment period or in future, you must consider it as a risk taker. You can't ignore the possibilities of a residential land to become a industrial facility, making the total valuation of the houses much lower than expected. So, before attempting the investment, you must check about the authorized ownership, the category of the land & also the future plans which will be initialized on the neighboring areas and free spaces in the locality.
2. Property valuation
Different monetary transactions in Real estate business are fully depending on valuation. Valuation will be required for mainly purchase, sale price listing, insurance premium, taxation, analysis of the total investment & more.
Generally used valuation method:
- Approach of comparing sales - Recent already sold goods can be compared with similar products.
- Approach of Cost consideration - Total cost minus depreciation, it is preferable for any new construction project.
- Approach of income - Depends on approximate inflow of cash, best for rental properties.
3. Aim and the purpose of the investment
Real estate investment has high returns but low liquidity, so before plunging into this market you must be aware of the purpose of your investment. If you don't have a clear purpose for investing in real estate, in future you might regret for experiencing several financial distress. The situation will get much worse if your investment is trapped in mortgage.
Select one of the categories of real estate investment to be sure about the purpose of your investment :
- Buy & Self-use: You'll save a good amount which you might be spending as rent. You'll also get the benefits of using the property for your own purpose & the appreciated value in future.
- Buy & Lease: You'll get regular income and the appreciated value for a long time. But you must carry out the duties of a landlord in case you have to handle possible disputes & legal issues, attend repair work or handling the tenants.
- Buy & Sell (Short Term): You'll earn quick short term profit by this strategy. You may require to buy the properties which are under construction & sell them with a decent amount of profit.
- Buy & Sell (Long Term): You'll need to keep the property for a long period of time; so you'll be getting the higher appreciated value. The profit will be helpful to meet other financial requirement in future, like - retirement, child’s education, marriage etc.
4. Carefully opt for the mortgage:
Taking loans for investment is a big risk despite of it's convenience. For investment in property business, it will require higher amount of loans altogether. Managing such huge amount in a proper manner is not easy. If you can utilize it properly it will get you maximum benefit, while ignoring the risks may cause you unimaginable pitfalls.
You might need to evaluate your current & future earnings before engaging such big amount as an investment. So, before taking the loan you must consider -
- The type of mortgage loans as per your requirements.
- Ask & verify carefully about the cost of the loans. Check about the other charges as well.
- Always look for a better deal. So, shop around for lower interest rates. Try to avoid PMI or go for the lower insurance premiums.