Location is one of the most important things to look out for in real estate investing, however, there are numerous other key factors to consider. To determine whether or not an investment is right for you, look at some of these things before you sign for any property.
1. Location of Property is the Most Important Factor
The adage of ‘location location’ is still the top consideration and the most important factor when you are looking at profitability in real estate investing. How close the property is to markets, freeways, warehouses, transportation hubs, and any tax-exempt areas are key factors when looking to invest in commercial properties. If you are considering residential properties, then a location with proximity to amenities such as schools, shopping centers, green spaces, scenic views, and medical care is going to make a significant difference.
Other location factors include the potential detriments to the area. You want to know if the area is susceptible to natural disasters. You also want to learn what the crime statistics are for the area as these factors will play significant roles in locating renters, and your insurance premiums.
2. The Property’s Valuation
The property’s valuation is going to be important when you begin the financing process. The taxes you will pay, insurance rates you’ll be given, the listing price, and the investment analysis will all depend on the property’s valuation.
3. Purpose of the Investment and Investment Horizon
The purpose of your investment and investment horizon is important because you need to consider the opportunities that will be available to sell quickly for cash should you need due to the high-value investment in real estate. Any lack of clarity you have could lead to unexpected results which can include financial distress.
Know which of these categories will suit your purpose, and then plan accordingly:
- Buying and Selling Long-Term
- This investment focuses on large intrinsic value appreciation over a long period of time. This type of real estate investing can be seen as an alternative to complement your long-term goals, such as retiring.
- Buying and Selling Short-Term
- This type of real estate investing is typically for small to medium profits, and the property is usually under construction and then sold at a profit when completed.
- Buy for Lease
- This form of investing in real estate offers you regular income with long-term value appreciation. You will need to perform duties as a landlord and be able to handle legal issues, possible disputes, repair work, manage your tenants, and other landlord responsibilities.
- Buy for Self-Use
- This investment will save you on rent and give you the benefit of self-utilization while gaining value appreciation.
4. What Will be the Expected Cash Flow and Opportunities for Profit?
Your cash flow is going to be how much cash you have left once expenses are paid. A positive cash flow is a key factor to having a good rate of return on your investment property. These are some modes of profit and expenses you can use to develop a projection for your possible real estate investing:
- Benefits of depreciation and any available tax benefits
- The expected increase in the property’s intrinsic value due to long-term appreciation in price
- Your expected cash flow from rental incomes
- Cost-benefit analysis for completing renovations prior to sale to increase value
- Cost-benefit analysis for value appreciation versus mortgaged loans
5. What are the Risks Versus the Rewards?
After you’ve combined the results of all the above factors, consider what the risks of your real estate investing are versus the rewards you’ll gain. If the rewards are higher, then you know the deal should be a successful one for you.
The best means to anticipate potential risks is to analyze, review and test all documents pertaining to the property. Do enough research to predict where this piece of property will be heading in the future. One example of a predicted future could be if the area is expecting improvements soon, which will impact taxes. If your property taxes skyrocket unexpectedly, it could lead you right to bankruptcy.
Where to Find Funding for Real Estate Investing
Realty Capital Finance delivers quick funding necessary in the real estate industry. If you are looking to purchase, refinance, rehab, or are considering ground-up development, call us today. Contact one of our specialists today and learn how Realty Capital Finance makes the funding process quick and easy.