Factors to Consider Before Investing in Real Estate
Investing in real estate is an excellent way for anyone to earn passive income. Long-time and experienced investors know that purchasing real estate is a great way to build a portfolio and earn consistent cash flow. That said, it can be pretty daunting to start. Lots of mistakes can be made that may affect your overall investment outcome.
Before making the significant financial decision that comes with purchasing real estate, there are quite a few factors to consider. After all, you can’t just jump into a large investment without considering your financials, the property location, and other factors that greatly affect the outcome in the long run.
Considering certain factors first will allow you to plan and see it through for a successful and lucrative investment. So let’s explore a few.
Of course, your personal financials and the finances that come along with investing need to be considered. Without taking this into consideration, it may be hard to determine if it’s a smart decision for you. After all, your goal is to make a considerable monthly profit from your investment.
Your personal financials should be solid and secure before starting this process. It’s a large commitment that you must be ready for. Think about where you are now and where you want to be in a few months or years.
Factors like mortgage rates, the current housing market, insurance rates, and taxes should be known and noted while making a real estate investment. Along with that, keep in mind your financial goals when it comes to investing. Your main goal should be a profitable investment property. Think about the 1% rule when looking at potential rental homes. If the home costs $100,000, will you be able to charge $1,000 for monthly rent?
You should also try to find a property that you can rent out quickly and easily. Fixer-uppers are typically not the best investment decision for people looking to purchase a rental property. You may end up spending your budget on fixing the home rather than renting it out to earn income.
Although you’ve most likely heard it before, it remains true for property investments. Location, location, location. This is one of the most prominent aspects to consider while deciding to invest in real estate. People are looking to live in places that are close to work, close to schools, and close to other opportunities.
You should research the crime rate in the area in which you are looking to invest. Most people tend to avoid locations that have high crime rates, especially if they have children involved. Everyone wants to feel safe in their homes, so investors should thoroughly look into the property area. A good neighborhood is a huge selling point for potential tenants.
With that, people also want to live in areas where work is close, and job opportunities are plentiful. Nearby jobs are often incentives for people who are moving to a new location. Most people aren’t looking to live in an area far from the city and nearby amenities—for example, grocery stores and restaurants.
Not only does the location of the property matter, but the overall looks of the rental home plays a role in attaining quality tenants. The outside curb appeal is the first thing prospective tenants notice, so it helps to make this area look as clean and friendly as possible.
Current Rental Market Rates
The rental and real estate markets are ever-changing. This is something you’ll need to look at and fully understand if you are trying to invest in a rental home. It’s wise to know the trends that drive real estate market values so that you know when you’re making a smart investment.
When it comes to a certain property location, look into price trends and when they tend to increase and decrease. It’s best to purchase a property when the market is low and sell it when you’re ready and the market is high. When it comes to monthly rental rates, look at the area’s average rates and base your price wisely.
If you are someone who is looking to own multiple properties or a large property with many units, a property management team could be highly beneficial. As a landlord, you are responsible for maintenance, upgrades and renovations, tenant complaints, monthly rental payments, seeking potential tenants, and more. These tasks can quickly become full-time jobs that most property investors don’t account for.
If you think you may need help, don’t be afraid to seek a helpful property management team to manage day-to-day tasks. Although some may not want to tack on the extra expense of a property manager, most investors conclude that this service helps much more than it hurts the bank.