What should you be on the lookout for when buying real estate? Although location is always important, there are many other aspects that can influence whether an investment is good for you. Here are a few of the most crucial factors to take into account if you intend to engage in the real estate market.
- Location of the Property
Why Is It Important?
The adage “location, location, location” is still true and remains the most important factor in real estate investing profitability. The proximity of amenities, green space, scenic views, and the neighborhood’s status all play a significant role in residential property valuations. Commercial property valuations consider proximity to markets, warehouses, transportation hubs, freeways, and tax-free zones.
What to Consider
The medium- to long-term outlook for how the neighborhood is anticipated to change over the investment period is crucial when determining where to locate a property. For instance, the quiet open space behind a house now might one day be transformed into a busy manufacturing plant, lowering its value. Examine the ownership and intended use of the immediate locations where you propose to make your investment in great detail.
- 2. Assessment of the Property
Why Is It Important?
Property valuation is critical for financing during the purchase process, listing price, investment analysis, insurance, and taxation—all of which are dependent on real estate valuation.
What to Search For
The most common real estate valuation methods are:
- Approach based on recent comparable sales of properties with similar characteristics—the most common and applicable to both new and old properties.
- Approach based on cost: the cost of land and construction minus depreciation—suitable for new construction
- Income approach: based on anticipated cash inflows—suitable for rental properties
- Investment Objective and Horizon
Why It is necessary
Lack of clarity regarding aim may result in unanticipated outcomes, including financial distress—especially if the investment is mortgaged—given the low liquidity and high value of real estate.
What to Check Out:
Determine which of the major categories listed below best fits your objectives, and then make plans in that direction:
- Buy and use yourself. You can profit from self-utilization, rent savings, and value appreciation in this location.
- Buy and rent. This provides consistent income and long-term value growth. To manage renters, do repairs, handle potential conflicts and legal concerns, etc., a landlord must have the right temperament. Getting in touch with the town hall or other government organizations in charge of zoning and urban planning is one approach to learn more about the prospects for the area around the property you are contemplating. You can then decide whether the long-term planning in the region is advantageous or unfavorable to your own strategy for the property.
- Buy and sell (short-term). This is usually for a quick, small to medium profit—the typical property is under construction and will be sold at a profit when completed.
- Buy and sell (long-term). This is customarily focused on long-term intrinsic value appreciation. This provides alternatives to long-term goals such as retirement.
In conclusion
Real estate can help you diversify your investment portfolio. In general, real estate has a low correlation with other major asset classes, which means that when stocks fall, real estate often rises. A real estate investment can also provide consistent cash flow, significant appreciation, tax benefits, and competitive risk-adjusted returns, making it an excellent choice.
