Six Factors to Consider When Investing in Real Estate

For beginners investing in real estate is difficult, especially if you have no clue on what to do. Here's an article to consider before investing in real estate.

last updated Sunday, April 28, 2024
#Investing in Real Estate #Real Estate Investment

John Burson     Subscribe
6 Factors To Look For Before Investing in Real Estate


There are several factors to consider when investing in real estate. Assuming you are new to the real estate business, many factors must be considered. 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 you can benefit from it. The first step of the investment business is research. This article will not elaborate on the basics of real estate investment. Today, I will be showing you some factors to consider before you plan to invest in the real estate business.


Location of Property

The top thing one searches for when investing in real estate is the location. It doesn't matter how aesthetic your house looks from the inside; if the area of your home is in the wrong 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 expect a place like this, check how the area will likely 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 evaluating a property will answer questions regarding investment analysis, financing during purchase, listing prices during the sale, insurance premiums, and taxation. In a nutshell, evaluating a property helps you decide if a particular parcel is worth your time and money. Compare sales of properties with similar characteristics, list the cost, and determine how the property would benefit you in your income.


Investment Purpose

Identifying your investment purpose is critical to having a successful investment. Lack of clarity or purpose sometimes leads to bad decision-making, resulting 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 one-time. Once you sell, you won't be able to generate money from the same property.
  • For short-term hold
    You make a small to medium profit by buying an under-construction property before selling at a profit after construction.
  • For long-term hold
    You might get a significant intrinsic value appreciation over a long period.

Profit and Cash Flow Opportunities

The amount of money left after expenses is known as cash flow. Even after buying and repairing your property, a positive cash flow is marked if you have little money left. 
Develop projections and track for profit, such as an expected increase in property value, expected cash flow from rental income, depreciation benefits, renovation analysis, 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. However, new buildings are also subject to risks, such as increased development costs.
Existing properties offer faster access to the marketplace and cost-effective solutions; property can be obtained at a lower cost. 

Optional: Before handling the property, you can review past projects and research more about the construction company. You can also 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 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 cash flow.

To increase your credit score, pay your bills monthly, 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 alternative investments that allow you to invest in real estate indirectly, consider investing in REITs, real estate company stocks, mortgage bonds, etc.


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