Investment in real estate has been one of the biggest options for those who are looking for larger returns. However, it can turn out to be one of the most loss-making if one does not consider various points before investing. This is because it involves a large amount of money. Also, it locks the money for a considerable period. Hence, the liquidity of the money is very less.
The below points can serve as a guide for those planning to invest in real estate.
Property location
This is one of the most important factors that determine the decision for investment in properties. Where a property is in a location close to market place, schools, or other facilities, its value will be very high. This mainly happens because such a property offers an easy access to the necessary facilities people require.
While considering the location of the property, it is important to understand the long-term changes it will undergo in terms of location. For example, the area where you are planning to purchase a property may be the countryside at present but may have the potential to become an urbanized area in a decade. In this aspect, public bodies responsible for town planning may help. It can provide details of the plans like public hospitals to be set up, some government departments to be established, etc.
Valuation
The price at which the property is set to be sold is the valuation of the property. There are different methods for valuing a property. One method involves including the cost of the land and the building. Here, one must add any appreciation or depreciation in the value with time.
Another method involves finding out the price of similar property sold in a similar location. This sets the market value of the property. In the third approach, the present value of the future cash inflows the property could generate gives the value of the product.
Purpose of Investment
This varies from person to person. Accordingly, the investment plan varies too. A person may be intending to invest in a property for the realization of the quick appreciation in the value. In such a case, investment for sale in a short period would be the investment plan.
Similarly, where the person wants to realize the rentals from the property, his investment plan would be to invest and hold the property for a long period. Here, the person can get the benefit of long-term appreciation in the value of the property.
Presence of Encumbrances
Some properties have certain legal obligations attached to them. Such legal obligations are encumbrances. These restrict anyone to get entitlement to the property i.e., no one can sell or purchase such property until the legal obligation is removed. Hence, it is important to find out that the property is free from any such encumbrance. Here services of real estate investment agencies can be of great help.
These agencies keep track of the properties which are available for sale. They also monitor their legal status, encumbrances attached to it, etc. The bigger pockets are one such agency. There are several agencies like bigger pockets that provide such services. They can also help you in finding out the right property for you in case you are unable to find one.
The trend of the Real Estate Market
The real estate market keeps on fluctuating. As a result, the prices of the properties often witness ups and downs. Hence, it is important to keep track of the current trend. This can be of great importance to the investors who are willing to invest for a short period.
Benefits as a Buyer of Off-Market Deals
Many real estate investors, myself included, like off-market deals for several reasons.
There can be various reasons for such fluctuations in the prices. Change in the mortgage rates is one of them. Change in the cost of labor may also lead to changes in the prices of the properties that are being newly constructed.
Alternatives of real estate investment
There are different alternatives to real estate investment. One must consider these alternatives before deciding to invest in properties. These are also investments in real estate but through an indirect route. Here, you are not purchasing a property directly. Instead, you make an investment in agencies that will be making real estate investments.
Benefits as a Seller of Off-Market Deals
Many people may be asking, “why wouldn’t an agent list a property in the most visible place to attract the largest number of potential buyers and thus the greatest number of offers?”
Networking with other investors will likely give you insight into a few things:
- Their inventory
- Their strategy
- Whether or not they’re looking to sell
Real Estate Agents and Broker
Mortgage bonds, real estate company stocks, real estate investment trusts are some of such options available.
One can conclude that real estate investing provides a great opportunity for investors who take calculated steps. However, those who don’t consider the above points may suffer a great loss.
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