Which Factors Should You Keep in Mind Before Investing In Real Estate?

Which Factors Should You Keep in Mind Before Investing In Real Estate?

Many people are shifting to investing in the real estate sector because of the low risk and the low profile attributed to it. There is continual profiting once the property is set up and has even seen companies around the world listing their property in the financial markets through assets and income REITS ( Real Estate Investment Trusts). However, just like any other business venture, there are factors or constraints that must be considered.

For investment in the real estate industry, keep the following in mind:

  1. Expected Cash Flows

Cash flows and profits expected from the investment should make sense. Numbers do not lie. The initial cash inlay to a project and the expected cash outflows should be calculated to give clear projections of the project’s value. Inflation rates, asset value appreciation, as well as cost-benefit analysis and expenses should all be calculated. Tax benefits and the benefits of depreciation should be considered as well.

  1. Purpose of Investment

You cannot put your money into a project without a clear purpose or long-term objective. The low liquidity and high investment value associated with real estate investment require precise goals before any cash or capital inlays. Properties for personal use, lease, or for sale will have different treatment procedures. There is a large intrinsic value on long term goals in investment because of appreciation and regular income when leased or rented. You may also sell off residential property later on and fetch good money from the investment.

  1. Value of the Property

Investment analysis, real estate financing, listing prices, insurance and taxes associated with the property are among factors that affect the overall value of residential properties. A good valuer should be fired to value the property under the cost approach, income approach for cash inflows and also a sales comparison approach. These will guide in making the best investment decisions.

  1. Location

The existing infrastructure at a location will determine the ultimate value of your property. There is a reason why there is land or property at prime locations, costing more than asking prices for other locations, regardless of the quality of work. You should look to evaluate the location in the intermediate and in the long term.  You should also make inquiries about the ownership and the future intended use of the neighborhood.

  1. Forms of Indirect Investments

Managing property is not for every person and therefore, there should be alternative ways for you to reap good returns from your investment. Some of the available options for you include REITS, company stocks, sector-focused mutual funds or bonds. Consult with property and financial analysts on the best option suitable for you.

  1. To Build or Buy

This is a dilemma to many new investors in the property market. You should undertake due diligence and comparisons on the merits and demerits of each available option. The best option should offer fewer expenses and more returns. Either way, a review of the ownership and title documents should be done as well as maintenance costs. Delays in possession, missing documents, and other legal feuds should be considered before taking on a path to investment.

In conclusion, the decision to invest in property is great. It is one of the high risk/ return projects but you should consider the above factors intently to avoid possible losses.

Image Source: Monikazoran / Pixabay

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About the Author

Sujain Thomas is a data IT professional who has written many articles on database, technology and many more. She has also contributed on sites like business2community, sendible, relevance etc.