Doing extensive research is critical when investing because of the significant risk that comes with it. Nevertheless, one of the safest alternatives you should consider is putting your money into real estate.
Due to the constant increase in a property’s value, real estate is an excellent investment with relatively low risk. Like other investments, there are vital factors to consider before investing in property.
1. The Budget
You need to have a budget before you consider purchasing a property. The budget will determine the kind of property you can afford and help you narrow your search regarding location and space.
Setting a budget will help determine if you can afford a stand-alone villa, three-bedroom, or studio apartment. Therefore, before you contact a real estate agent, sort out your finances and determine what you can spare — this will help you be more realistic in the investment type you can get into.
When calculating your budget, you should include the hidden costs you may need to pay to banks and agencies and other expenses like furnishing, renovating, or preparing the property for rentals.
2. Property Type
First, you must ensure that the type of property you choose makes for a good investment and is within your budget. It would be helpful to go through a complete guide to buying real estate to help you decide on the best type of property.
You may realise that a turnkey rental property is your best choice to gain profit immediately since it will be ready to rent out. Nevertheless, each property type has its terms and guidelines. Therefore, you should decide what you want in advance.
If you do decide to invest in buy to let property then you should probably look for a reputable buy to let property investment guide by industry specialists before parting with any money.
3. Value of Property
An estimate of a property value will help you determine if the investment is worth it. There is no point in purchasing a low-cost property only to realise you must spend lots of cash on renovation.
Before investing in a property, get the estimated value and compare it with the value of other properties with similar characteristics. You can go through advertisements or request your real estate agent to show you the market value for the property type you’re eyeing within a specific location.
Researching will help you make a good choice and even bring to light better options.
4. The Location
Price and location usually go hand in hand in hand. Location is usually the most important factor for profitability in property investment.
The neighbourhood’s status and proximity to scenic views, green space, and amenities contribute to residential property valuation. Closeness to transport hubs, tax-exempt areas, warehouses, markets, and freeways play a crucial role in commercial property valuations.
If you buy a property situated in a nice area, it will be in high demand and can attract a high selling price. A similar property in a diminishing location won’t have the same appeal and will not attract as much demand. You may dig a little bit deeper into your pocket, but to purchase a home in a better area means you have more profitable alternatives down the road.
5. Purpose of Investment
Due to the high-value and low-liquidity investment in real estate, the absence of clarity on investment purpose may lead to unexpected results like financial distress, mainly if your investment is mortgaged.
You can buy a property for self-use, lease or future sale. Determining the purpose of your investment will help you get a clear vision of what type of property you’re looking for, narrow down the available options, and decide on a property that meets your needs.
6. Payment plans
After making a budget, you should determine the best payment plan that will suit you. Ask yourself if you’ll be able to get the liquidity you require by securing a bank loan. Find out the risk you’ll face and how long it will take to repay the loan.
You need to know the nitty-gritty involved in taking a loan to invest in property. Before making any decisions, it’s essential to understand things like Lender Mortgage Insurance (LMI). Joust explains that LMI is tax deductible if it is charged halfway throughout the year.
Before taking this big step, you must understand these factors, particularly if you’re not sure the property is worth it. Sometimes, paying for a property in instalments may be better than a one-time payment. This will allow you to generate the required cash flow without paying absurd interest amounts to your bank.
7. Real Estate Regulations
Before making such a significant investment, you need to know the rules and regulations of the area you’re buying property in and the taxes you’ll pay. It’s usually advisable to bring in a local lawyer to guide you through the whole process and the steps you need to take to avoid paying fines and getting into inconvenient situations, mainly concerning taxes.
8. Anticipated Return on Investment
Return on investment is a vital factor to consider if you’re planning on purchasing a property for investment purposes. Find out if you’ll be able to rent the property instantly or the duration it will take to set it up for your plans.
Moreover, you should factor in the amount of profit you expect to decide the best option for your investment. Besides that, property appreciation is also an important factor in determining if it’s worth taking the risk. It is also a key element in coming up with a solid plan.
Before investing in a property, you should know your plans, including what you want to do with the property. This will help you determine the factors that best suit your needs. You’ll also be able to make a decision having the real estate value in mind, and the payment plans you’d have to take to make the property a great investment option.