6 Factors To Look For Before Investing in Real Estate

Real Estate Investment

last update Friday, October 21, 2022



multifamily investing


#1 Location
#2 Evaluation Of Property
#3 Investment Purpose #4 Cash Flow
#5 New Construction #6 Credit Score

There are several things to look for when it comes to investing in real estate. Assuming that you are new to the real estate business, there many factors to look out for. First things first, if you have no idea about investing in the real estate market, you need ample knowledge to understand what real estate is and how can you benefit from investing in it. The first step of the investment business is research. I am not going to elaborate on the basics of real estate investment in this article. Today, I will be showing you some factors to consider before you plan to invest in the real estate business.


Location of Property

The topmost thing one searches for investing in real estate is the location. It doesn’t matter how aesthetic your house looks from the inside, if the location of your house is in a bad place, it will be difficult to get buyers or tenants. A location with greeneries, proximity to markets, and a friendly neighborhood is a hotspot for buyers or tenants. If you are expecting to get a location like this, check how the area is expected to evolve throughout the investment period. Doing so will help you see the big picture of investing in a property.


Evaluation of Property

This is the second but one of the most important factors because the evaluation of property will answer questions regarding investment analysis, financing during purchase, listing prices during the sale, insurance premiums, and taxation. In a nutshell, the evaluation of a property helps you decide if a certain property is worth your time and money. Compare sales of properties with similar characteristics, list the cost, and determine how would the property benefit you in your income.


Investment Purpose

Identifying your investment purpose is key to having a successful investment. Sometimes lack of clarity or purpose leads to bad decision making which results in financial distress. These are some factors that can help decide.

  • Buying properties for yourself: You can save on rentals and benefit from utilizing the property yourself.
  • Leasing your property: This ensures a regular income with long-term appreciation.
  • Buying and selling a property: It’s fast but the amount you will get by selling a property can be a one-time thing. Once you sell, you won’t be able to generate money from the same property.
  • For short-term selling, you make a small to medium profit by buying an under-construction property before selling at a profit after the construction is complete.
  • For long-term selling: You might get a large value intrinsic appreciation over a long period.


Profit and Cash Flow Opportunities

The amount of money left after expenses is known as cash flow. If you have a decent amount of money left even after buying and necessary repairing your property, it is marked as a positive cash flow.
Develop projections and track for profit, such as an expected increase in property value, expected cash flow from rental income, benefits of depreciation, analysis of renovation, mortgage loans, and value appreciation.

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New Construction vs Existing Property

New construction usually offers attractive prices, flexible customization, and many other efficient features. But new constructions are subjected to risks as well, for example, increased costs of development.
Existing properties offer faster access to the marketplace, and cost-effective solutions, property can be obtained at a lower cost. 

Optional, What you can do is review past projects and research more about the construction company before handling the property. Review property deeds, surveys, and appraisal reports for existing properties. Considering monthly maintenance costs, taxes will help you track expenses.
Note: Investing in already leased property requires research. Find out if the property is on rent-controlled, rent-stabilized, or free market.


Credit Score

Your credit score affects your ability to qualify for a mortgage. If you have an "800" or higher credit score, you will attract better loan terms and as a result better savings and better cash flow.

To increase your credit score: pay your bills every month, keep your credit card balance to less than 70% of the available credit line, don’t close unused credit cards, and review your credit card reports (use the free mobile app - CreditKarma).

In conclusion

Managing physical properties is not for everyone. If you are searching for alternatives that allow you to invest in real estate indirectly, consider investing in REITs, real estate company stocks, mortgage bonds, etc.

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