There are fortunes to be made in real estate provided you know what you’re getting yourself into. Craig Nassi, a licensed real estate broker in New York, said that there are three ways to make money from real estate:
• Benefiting from an increase in property value.
• Gaining rental income from leased properties.
• Generating profits from real estate operations (such as vending machines in your office buildings, coin-op washing machines in your condominiums, and the like).
He also shared that real estate investment is just like any other business that carries some degree of risk. Thus, it is critical to be informed so you can mitigate these risks, ensure profit on your investment, and save yourself from huge losses. He mentions taking note of these considerations before buying the first property or even any property to add to your portfolio.
Don’t Let Your Emotions Rule You
Real estate is not about emotions but economics. Most people listen to their heart when buying their first home. It may be fine if you foresee yourself growing old and living there for years. However, it is different when it comes to a purely investment property. Logically negotiate the lowest possible price because the lower it is, the higher your profit margin will be. Use analytical tools and financial assessments rather than relying on personal likes and dislikes. Data is king when it comes to investments.
Do Extensive Research
First, identify what you will be using the property for. Is it primarily for rental income? Are you looking to hold on to it as a vacation home, while waiting for its property value to increase? Research the area around the investment property you are buying. Are there any future construction plans near the area? Know all these as it will impact your property’s value down the line. Craig Nassi noted that the most important consideration is location. Ensure that the property is situated in an area that will attract the clients you hope to rent or sell the property to.
Secure A Down Payment
Any home you purchase will require a down payment. Anyone can close the deal with as little as a 3% down payment. However, an investment property requires at least a 20% down payment because mortgage insurance does not apply to investment properties. On top of that, these properties have a more stringent approval process and requirements.
Calculate Total Expenses
You have to calculate the total expenses if you are indeed going to be making a profit. Aside from calculating how much money you have, your loan amount, and the expenses that come with closing the contract, you need to prepare for other eventualities. Will the property need renovation and how much are the estimated costs? Also keep in mind the operation costs of maintaining the property. Do you have enough to tide you over while your units have no tenants? Finally, make an estimate of the price you will eventually sell your property for, minus the possible expenses that this will entail. These are all the details you need to consider before signing a contract.
Consider Your Overall Financial Standing
Before plunging into another big debt for your investment property, compare it with your other financial obligations. Do you still have student loans and medical bills? Those monthly payments can pile up, so it is better to study your whole financial standing before taking a big risk. Do all your calculations, factoring in these details along with your daily expenses, to see if you can actually afford the investment property. You need to be in the safe zone, otherwise, you’ll be stressing on how to find the money for the monthly payments for your investment.
Like every other business, investing in real estate has the potential to bring you up or down. It has the capacity to bring you large profits, but it can also turn into a disastrous experience leaving your bank account in shambles. The important thing to remember is to take a calculated risk and to play it safe. If you do your research and plan well from the very start, you increase your chances of coming out on the winning side.