In the world of investments, there is no such thing as “risk-free investment.” No investment type is safe from risks — including real estate investments. That is why you should consider essential and crucial factors before you invest in real estate. Let’s explore the crucial factors you must consider before you enter the world of real estate investments.
1. Types of Property
One of the first things you should consider, determining the type of property you would want to invest in can also determine your success. Since there are many types of property, you should make a careful and calculated decision to choose the type that is the best fit for your plans and goals in mind. The types of property are the following:
- Agriculture Property (farms, timberland, e.g.)
- Residential Property (apartments, condominiums, e.g.)
- Commercial Property (office spaces, malls, e.g.)
- Industrial Property (factories, power plants, warehouses, e.g.)
- Special-Use Property (parks, places of worship, schools, e.g.)
- Mixed-Use Property (a combination of 2 or more of the above)
Each type of property will have its own set of guidelines and terms that you should also keep in mind. Those guidelines will make it necessary for you to consider the type of property in advance.
Imagine you’re buying a pair of shoes, You go to the mall and you search for the best shoes for your taste. You find the perfect pair, but when you take out your wallet you find that your budget is lacking. The result? You’re embarrassed and your time has gone down to the drain.
This can certainly happen in investing if you do not consider your budget constraints. Doing a budget analysis can certainly help, and this not only helps you determine the best type of property for you, but it can also help you narrow down on choices with land area and location factors in mind.
Directly related to your budget and type of property in mind, determining the right place and location of the property you would want to invest in is of much importance. There are several factors to keep in mind as to why you should consider the location along with your budget and type of property. Here are the factors:
- Demographics – demographics include the size of the local population, animal population (for industrial and commercial purposes), proximity to nearby establishments, and many more.
- Expenses – there are locations that are more expensive than others. This is influenced by land value, proximity to nearby establishments, and certain regulations of use (often for agricultural, commercial, and industrial zones).
If you already determined the type of property you would invest in and considered your budget allocation, you should choose a location with the two in mind (type of property and budget).
4. Investment Purpose
Investments are created for a purpose and it is geared towards the future. Real estate investments are not an exception, and you should analyze the very reason why you’re making the investment in the first place.
This purpose is coupled with the decision to choose a specific type of property, and analyzing your purpose is the quickest way to determine what type of property you should acquire. (e.g., if you want to build a chemical factory, you should choose the industrial property type).
5. Property Value
A property’s value is determined by a lot of factors (demographics, zoning, and proximity to nearby commercial and industrial entities, to name a few). Since property value must be considered when investing, you need to get an estimated value to help you know whether the investment will be worth it or not. There are numerous cheap properties that offset their initial price with massive renovation and repair costs, so stray away from these types of properties and find better options.
6. Expected Return on Investment
No investor carefully invests just to get no money back. So, if you intend to buy a property for investment purposes, you should analyze your expected ROI. Start off by asking yourself if you’ll be able to do the things you need to do in order to get your target ROI. Since you expect a certain sum of your ROI, you must be willing to take action to get that expected ROI. Also take note that the property will gain property appreciation over time, and it may or it might not increase your expected ROI. You can get an accountant to help you out so you can get more cash for land.
7. Payment Plans
After considering your budget constraints, payment is the next step to take. Since real estate transactions involve large sums of money, paying in cash may be a hassle. Payment plans can be in the form of cash, installment, or loans. Paying a one-time payment through cash will most certainly entail a pretty high interest rate. It will be much better to consult with an accountant to help you save more money from interests in other payment methods.
8. Real Estate Laws
Since real estate properties are under local government jurisdiction, you must adhere to relevant real estate laws to avoid unnecessary hassle on your part. Real estate laws are, straightforwardly speaking, complex and difficult to understand. But since you are an investor, you must adhere to the law, and one way to help you ease things out is to hire a lawyer who specializes in real estate, and an accountant for taxation purposes since taxes can be confusing and messy at times, especially when dealing with real estate.
Investments need action, knowledge, and courage to brave risks. Since all investments are not risk-free, equipping yourself with the necessary tips and knowledge will be one of your best bets to get the return on investment you’re dreaming of.
To summarize, you must prioritize doing the tips above step-by-step. You can start by finding your investment purpose (1st), choosing the type of property (2nd), allocating budget (3rd), finding the right location (4th), researching for the property value, expected ROI, and real estate laws (5th, 6th, and 7th), and determining the right payment plan (8th). Also, take note that you can get help from accountants, real estate agents, and real estate lawyers to ensure much more investment success. Good luck!