9 Things to Consider in Real Estate Investing

What are some features you need to look for in a property during real estate investing? Here’s what you need to know!

If you’re a new real estate investor, chances are you already know a few important things a real estate investment needs to have. But do you know all of them?

Here are nine most important things you need to consider in real estate investing!

Property Location

You are probably already aware that property location is the key in real estate investing. You should think about the mid-to-long-term view of the neighborhood and try to predict how the area will look in the next decade. This can be tricky. A peaceful field behind the house you plan on buying can tomorrow become a manufacturing facility. No one would want to live there! You shouldn’t ask questions about just the property you consider buying, but rather research the local grounds, as well. Contact town halls or public agencies and ask them about the long-term area planning to give you a better insight.

Property Valuation

Property valuation is essential because it helps you understand the financial aspect of your real estate investment. It’s important for processes such as the listing price, investment analysis, taxation, insurance, and the purchase itself.

Some of the commonly used real estate valuation methods are sales comparison approach, cost approach, and income approach.

Investment Purpose and Horizon

Real estate investing isn’t cheap. You always have to know why are you purchasing said property and what do you plan on doing with it. This is the best thing you can do to avoid getting into financial distress. Think about whether you want to resell the property, use it by yourself, rent it, or something else. Then, act according to plan.

Leverage

Loans tend to be necessary when purchasing real estate, but they can cost you greatly. You invest the money you still don’t have to get utility today. You need to know how to handle loans and to be wary that you’re getting a debt you’ll need to pay off in years to come.

Ask good questions to every mortgage agency out there until you find the one with best conditions. Not just that, but you need to think about the type of mortgage that will suit your needs the best. Should you get a fixed-rate or an adjustable-rate one? Maybe the interest only? Or perhaps you want to ensure you won’t pay any down payment at the cost of the higher interest rate? Think about your financial plans and make the best decision possible?

Cash Flows

Cash flow refers to the money you’ll have after all the expenses. You should always aim for a positive cash flow, or rather to have a good rate of return. To understand the cash flow, you need to think about things such as the expected cash flow from rental income, expected increase in value due to long-term price appreciation, tax benefits, cost-benefit analysis of renovation if you want to increase the sale price.

New Construction or an Existing Property

This is another decision you need to make when considering real estate investing. For example, new construction is more attractive to buyers and you can resell or rent at a higher price, and you can modify it at will. However, there are possible delays, and the purchase price will be higher for you, as well. Not to mention that you have no way of knowing how will the neighborhood look like in the future!

On the other hand, existing properties, while not as attractive, offer faster access, convenience, in most cases are already established, and you know what you’re getting into.

Your Credit Score

Your credit score can affect your ability to qualify for the mortgage, and it can ruin your chances of getting into real estate investing. You should always take good care of your FICO score and do all you can to keep it as high as possible. While most regular buyers should try to keep their FICO score above 700, real estate investors should keep it above 800. There are many methods for raising your credit score fast, and don’t be afraid to utilize them.

Indirect Investment

Truth is, real estate investment in the physical sense is not for everyone. It takes a lot of your time, and you need to put in a lot of money. There are other ways you can invest in real estate – indirectly. These include: Real estate investment funds (REITS), Real estate sector-focused mutual funds and ETFs, real estate company stocks, mortgage bonds, and mortgage-based securities. All of these will help you profit from the real estate industry, without risking as much as you would if you bought a property.

Condition of the Real Estate Market

Let’s face it. The state of the local real estate market can greatly impact your real estate investing plans. Every investor aims to buy low and sell high. However, even though more illiquid than other markets, real estate market can still fluctuate from time to time. You should be aware of local trends and pay attention to current mortgage rates. You should look at the home sale prices, how much new construction is there, how big is the property inventory, and what the number of foreclosures is.

Bottom Line

Overall, real estate investing can be a great way to ensure a passive profit. However, it’s also filled with risks, and you need to know what you’re getting yourself into. Because of this, there are many factors you need to consider before you make that purchase.

Do you want to learn more about real estate investing? Sparks Property Investors LLC is here to help! Contact us today if there is anything you need to know on this topic! (262) 288-0580

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