Investing in real estate is easily one of the best investments you could make. It consists of buying a property such as a house, apartment, commercial premises or land, and then selling or renting it. Here are some good general real estate tips.
When investing in real estate one acquires a property and expects its value to increase over time before selling. While waiting for the property to appreciate, you can still start making money immediately by renting it to tenants. How you get the property could vary. You could buy an old house, repair or remodel it and then sell or rent it, or build (in the case of having acquired a land) and then sell it or rent it.
Experts consider investment in real estate as a low risk, safe, and profitable investment.
Despite being considered as a safe and low risk investment, many people who have decided to invest in real estate have suffered great losses, either by buying a poorly located property, not finding who to rent it later, or having to make repairs or remodeling that in the end ended up being more expensive than expected.
That is why before doing so we must consider the following points so as not to put our investment at risk.
- Conduct Thorough Analysis On The Property You Intend To Buy And The Total Investment It Will Require
When choosing a property to invest in, you must take into account the risk/benefit factors such as the location, the price, the state of the property, the need for repairs or remodeling, the maintenance that will be necessary, the taxes to be paid, the necessary credit to buy the property and, above all, the possibility that the property may be resold or rented at a price that justifies the investment.
- Think Of Long-Term Investment
Do not sell early. Investments in real estate are, for the most part, in the long term and in some cases in the medium term. That is why we must bear in mind that the investment and the profits that could be obtained will be long term, not less than 3 years. Remember that almost always, the surplus value of a property is subject to time and the real estate market.
- Calculate The Profitability Of The Property Before Investing
To find the best investment option, it is also advisable to take into account other factors such as profitability. You have to have an idea of what should come back as return on your investment.
The formula to find the profitability of an investment is:
Profitability = (Profit / Investment) x 100
To calculate the profitability of a property, the investment of the property and the profit it has generated must be taken into account. The profit can be gotten from the difference between the likely future sale price and the investment (capital gain) or, in case of renting, for the difference between rental income and expenses (cash flow).
For example, if a property had an investment of $30,000, and is later sold for $40,000, the profitability of the property will have been: ((40000 – 30000)/30000) x 100 = 33.3%.
Or, for example, if a property had an investment of $30,000, the rental income in one year was $12,000, and the expenses in the same period were $10,000, the profitability of the property will have been: ((12000 – 10000)/30000) x 100 = 6.7%.
In case we want to find the profitability that we could obtain with a property, to find the future profit we could take into account the average growth rate of the value of the properties in the area or, in case we have planned to rent it, the flow of average cash of the properties in the area.
Real estate investment, like any investment, has a percentage of risk and it is possible that the property suffers devaluation. However, we can foresee these risk factors in some way and sell the property ahead of schedule to avoid future risks. An ideal benefit is to get up to 30% more than what we pay in 3 years of investment.
- Diversify The Investment
It is important not to invest everything in the same market. For someone who invests in real estate, to diversify your investment, a good strategy can be buying more than one cheaper homes and then renting them, instead of just one more expensive property.
- Presale Is The Key
Look for projects in pre-sale prices this ensures you even more profitability at the time of the long-term sale.
TO BE CONTINUED…