Three Things to Consider When Investing In Real Estate

Three Things to Consider When Investing In Real Estate

on Mar 8, 2022 in Small business

What should you look for in a real estate transaction? While the location is always important, there are many other things to consider when deciding whether or not to invest. Here are some of the most crucial things to think about if you want to invest in real estate.

The Location of the Property

The cliché “location, location, location” is still true and remains the most crucial aspect in real estate investing performance. Residential property assessments are heavily influenced by proximity to amenities, green space, attractive views, and the neighbourhood’s standing. Commercial property valuations are heavily influenced by proximity to marketplaces, warehouses, transportation hubs, freeways, and tax-free zones.

What to Watch Out For

The mid-to-long-term vision of how the area is likely to advance over the investment period is critical when evaluating property placement. Today’s tranquil open ground at the back of a residential building, for example, could become a noisy manufacturing site in the future, lowering its value. Examine the ownership and intended use of the immediate locations where you intend to invest thoroughly.

Profit Potential And Expected Cash Flows

The amount of money left over after expenses is referred to as cash flow. A decent rate of return on an investment property depends on positive cash flow.

What to Watch Out For

  • Make profit and expense estimates for the following profit and expense modes:
  • Rental income is expected to generate a certain amount of cash flow (inflation favours landlords for rental income)
  • Long-term price appreciation is expected to boost intrinsic value.
  • Depreciation’s Advantages (and available tax benefits)
  • Before selling, do a cost-benefit analysis of renovations to acquire a better price.
  • Mortgaged loan cost-benefit analysis vs. value appreciation

Existing Property vs. New Construction

New construction typically has lower prices, more customization options, and more modern facilities. Delays, higher expenditures, and the unknowns of a freshly constructed area are all risks.

Existing properties provide convenience, quicker access, pre-existing amenities (utilities, landscaping, etc.) and, in many situations, reduced pricing.

What To Watch Out For

When picking between a new building and an existing property, keep the following in mind:

Examine previous projects and look into the reputation of the building company when it comes to fresh investments.

For existing properties, look over the documents, recent surveys, and valuation reports.

Consider the expense of upkeep on a monthly basis, as well as any unpaid dues and taxes. These kinds of expenses can wreak havoc on your cash flow.

Find out whether a leased property is rent-controlled, has Strata management such as, rent-stabilized, or free-market before investing. Is your lease about to end? Are the tenant’s renewal alternatives favourable? Who is the owner of the furniture?

If items are to be included in the sale, be sure they are in good condition.

Final Thoughts

Real estate can assist you in diversifying your investment portfolio. Real estate has a poor correlation with other main asset classes in general, so when equities fall, real estate often rises. A sound investment in real estate can provide consistent cash flow, significant appreciation, tax advantages, or competitive risk-adjusted returns.

Of course, before investing in real estate—whether actual property, REITs, or something else—vital it’s to evaluate certain criteria, such as the ones stated above, just as you would with any other investment.

Image source: Unsplash


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