December 17, 2013

Points to Consider Before Investing in Real Estate

Everyone seems to be rushing in to buy real estate, but very few investors are smart enough to plan their purchases and analyze what type of an investment is suitable for them. For an investment decision that does not keep your awake at night, read on the following points that will help you prepare and plan your property purchase.

Are You Prepared Enough?

Investment in real estate is not cakewalk. Agreed that you can secure funding from the bank, but are you in a position to repay it? How long would it take? Before you even start thinking about searching for property, make sure you have a clear understanding of your personal finances. Even though some people have been lucky in the past, parking your money in real estate is not just a “get rich quick” strategy; it needs a lot of research and planning. So take your sweet time and find some appreciating properties through real estate websites and public forums to get maximum benefit.

Think of a Plan

The main reason why investors lose money in a business is because of lack of planning. Real estate investment is also a business opportunity where you are seeking to grow your money over the years. The right strategy can help you do so quickly.

The Type of Property

There are various types of properties that you may include in your investment portfolio. The kind of real estate you opt to invest in should suit your plan and current standing in life. Here are the types of houses you can invest in:

• Well-maintained properties: Do not opt for a creaky old house and waste time, money and effort to repair it.  Buy a property in good condition to get a decent return on investment, without further spending on repairs.

• A personal home to put on rent: Owner-occupants tend to get the finest rates for financing. So live in the house before selling it.

• Avoid expensive houses: The bigger the price of your home, the smaller the net rental income seems in comparison.
Make sure you have thought of what you would like to do with it in the future. This will help you get a clear idea as to what you should buy.

The Expenses Involved

The biggest mistake first-time investors make is that they don’t count in other expenses. Agreed that the down payment and EMI are your main concerns at this point, but make sure you include the expenditure for regular repairs and other services. The outflow can include expenditures of water/sewer, utilities, legal fees, garbage, accounting, evictions, fuel, scheduled maintenance and capital improvements.

The rule of thumb is to use the ‘50% approach,’ which states that, on average, your total expenses on your real estate will amount to 50% of your income. Thus, if your home is rented out for $2,000 a month, the expenses may add up to be around $1000 per month, prior to the payment of mortgage. This helps you streamline your income and expenditures.

Hope the above points help potential investors get a fair idea of real estate investment so that they can invest in the ideal real estate that will reap higher returns in the future.

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