Factors to consider when investing in real estate

Real estate can be an extremely lucrative venture but like any other business, if not done with due care, it can lead to major losses for the investor. You need to have a good understanding of what you will be entering into so that you can avoid making mistakes.

So what do you need to consider?

  • Purpose of investing in real estate

The obvious reason as to why you have chosen to invest in real estate is to make money. However, you need to contemplate on how you want to make the money through real estate investments.

Ask yourself whether you are looking to invest in the long haul or are looking for quick money off a sure thing. You also need to put into consideration whether or not you intend to improve the property you are purchasing.

A lack of planning when it comes to real estate puts you at risk of incurring greater losses than profit. Knowing what you plan on doing with the property you have invested in, puts you in a position to maximize your potential profits by focusing your efforts on what you purpose to achieve.

  • Location of the property
House for sale with hand holding keys on blue sky background

This is a very crucial factor to consider in real estate investment. You need to consider proximity to amenities such as hospitals and water, security, the view, and the surrounding neighborhood.

Outside of these factors, you need to consider both the short-term and long-term view about how the locality could change or evolve over the duration of the investment. For example; an open piece of land in the vicinity of residential buildings may be turned into a manufacturing facility. This would, in turn, make the place noisy and inhabitable hence reducing the residential value of the place. Conduct a thorough check on the neighbourhood, establishments and free land in the locale to be sure about the ownership, type, and intended usage.

  • Expected cash flow and profit opportunities

You need to consider factors like the returns from the rent and the annual appreciation on your investment. It doesn’t make sense to have property that brings in little to no returns while you continue to take care of the maintenance costs.

  • The true cost of investment

You will accrue costs throughout the ownership of your property regardless of whether it is residential or commercial. As such, you need to anticipate these costs which include maintenance, taxes and interest rates, in order to calculate or have an idea of your net profit per month. Keep copies of the amounts you have paid for such expenses over time. This will give you an idea of your general expenses thus helping you plan for future expenditure.

Consult a mortgage broker regarding available loans and interest rates as they will work to find you the best money saving deals. This helps improve the quality of your newly acquired property thus maximizing on profits.

As with any business, investing in real estate can be risky but it should not discourage you from investing. As long as you do proper research and carefully consider the risks involved you will find real estate is a lucrative and worthwhile investment.