4 Things to Consider Before Investing in a Real Estate Property

March 29, 2023

4 Things to Consider Before Investing in a Real Estate Property

Investing in real estate can be a daunting prospect. While it can certainly be lucrative, it’s also quite risky. In particular, real estate lacks the liquidity of gold, stocks, and other similar assets. If you need instant cash, you can’t rely on earnings from your rental property or sell off your beachfront vacation home in a snap.

As such, you need to be extra careful before you decide. First and foremost, you need to conduct thorough research. Study the latest housing market forecasts, the best locations to invest in real estate, and the property valuation of your prospects, among many others.

It’s also a good idea to get in touch with a real estate brokerage. They use tools like Brokerkit recruiting software to hire the best real estate agents, who can then point you toward the best available properties based on your budget. You may also want to look for a property manager. This way, you can be more hands-off about your investment as you let the professionals handle the nitty gritty.

With all that being said, here are some things you should consider before you commit to a real estate property investment:

Key takeaways on investing in real estate property

  1. Consider the property's location, as proximity to amenities, infrastructure, and potential future developments can significantly impact its value and profitability.
  2. Start with a lower- to mid-priced property for your initial investment to minimise risk and allocate funds for necessary improvements before renting or selling.
  3. Evaluate the pros and cons of new constructions versus existing properties, taking into account factors like potential delays, customisation options, and hidden structural problems.
  4. Real Estate Investment Trusts (REITs) provide an alternative for those not ready to commit to long-term property ownership, allowing investors to earn dividends without direct property management.
  5. Conduct thorough research on the housing market, best locations for investment, and property valuations to make informed decisions.
  6. Collaborate with a reputable real estate brokerage and consider hiring a property manager to help you find the best properties based on your budget and manage your investment efficiently.
  7. Assess the price bracket of the property and factor in additional expenses for renovations, maintenance, and management to ensure a realistic and profitable investment.
  8. Understand the types of REITs available and consider publicly traded REITs for easier valuation and familiar investment experience similar to stocks.
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Property Location

One of the biggest things that influence the value of a real estate property is its location. The closer it is to commercial establishments, necessary infrastructure (e.g., hospitals, transport hubs), and green spaces, the more profitable it becomes.

Of course, you should also look at the mid- to long-term prospects of a certain area. Even if a property isn’t high-value now, it may be so in the future. Check out the activity in the vicinity. Are there more businesses cropping up? Is there a highway under construction? Did a big-name company express interest in expanding in the location? These things can boost the value of real estate investments, which means it’s more favorable for you if you can make an early purchase.

The Price Bracket

It’s a fact that investing in real estate costs a lot of money. Depending on the type of property you want to buy, its location, and many other factors, one small house can easily cost you a million bucks.

However, even if you are prepared to shell out that much (or more), it’s best not to do so for your first foray into real estate investing. In fact, some experts say you shouldn’t go beyond $150,000 to $200,000 for a house. This way, you aren’t risking too much.

There’s also the matter of further expenses you have to make the property suitable for renting and selling. If you spend too much on acquisition, you may not have enough for this second crucial step. As such, it’s best to buy lower- to mid-priced properties for your early real estate investments. Once you’ve made a good profit and acquired some experience, you can start investing in more expensive properties.

New Vs Old

Apart from the price of the property, you also have to consider whether you’re going for a new construction or an existing one. There are pros and cons to acquiring both. If you go for a completely new property, you’ll get competitive pricing offers and modern amenities. The developer may also allow you to customise to a greater degree.

The downside of buying new, however, is that you might encounter delays. The location might also be an issue if it’s not yet as established as a bustling business centre. For a while, you have to contend with the uncertainties of a new development until it settles. Both of these can affect the property’s profitability in the early days.

Meanwhile, an existing property means it’s more or less ready for tenants. Unless it’s in a dire state, you can quickly put up a house or apartment for occupancy after a few weeks of repairs and refurbishing. Buying an existing property is also cheaper than buying a new one. On the other hand, existing properties may have hidden structural problems and other issues that can eat up your budget. Depending on the location, you may also experience a decline in demand and value when newer areas develop. These factors are essential when deciding how to finance an apartment building.

REITs

If you feel like you aren’t ready yet to commit to a long-term real estate investment, you may want to consider real estate investment trusts or REITs. Essentially, a REIT is like a mutual fund. They pool investments from multiple individuals, then invest the sum into income-generating real estate. This way, individual investors can earn dividends without having to actually buy and manage properties.

That being said, it’s crucial to understand the type of REIT you’re buying into. If you’re completely new to this venture, opt for publicly traded REITs, which are similar to stocks. This way, it will be easier to compute the value of your investments.

Investing in real estate is a big step towards further growing your wealth. If you’re planning on buying a property in the near future, make sure to consider the above-mentioned factors before you make a decision.

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