Real estate investment can be a lucrative venture, but it is not without its risks. It is extremely important that the property you purchase is one that has the potential to make you money. If you choose badly, you can lose the bulk of your investment. The following six tips can help you purchase a property that will provide you with many years of financial gains.
Tip #1: Remember, Location Is Everything
A good location is, and always has been, the most important factor in securing a successful real estate investment deal. If you are investing with an eye toward capital growth, it is essential that you purchase a property that is likely to increase in value over time. This can only happen if the property is located in a promising area.
A promising area is not necessarily the most expensive place or one where you can get a great deal on properties. Rather, it is a place where people would like to live or vacation because of the scenery, the climate, the available culture and entertainment, the availability of good schools, or a number of other reasons.
Try to choose an investment property in an area where there is a strong demand for rental accommodation. A property that is close to transportation, schools, and entertainment will be more attractive to renters. Properties in areas that show signs of growth, neighborhood development, and improving infrastructure are more likely to earn you a profit.
Tip #2: Know Your Budget… and Stick to It
As with any type of investment, it is important that you are aware of how much capital you have to spend and that you do not over-extend yourself. Before embarking on an investment venture, be sure that you have a thorough understanding of your cash flow.
Do not purchase the first property that looks promising. Check out a number of different properties in the area and compare pricing, amenities and the likelihood you will be able to rent the property easily. Do not think about properties as being “cheap” or “expensive;” rather find suitable properties that fit the budget you have to work with.
Also, keep in mind that the listing price of the property is not going to be your actual final cost. Factor in the cost of furnishing and decorations (if not included with the property), closing costs, title transfer fees, and other one-time payment such as water meter transfer fees. All of these fees should fit into your pre-established budget so that you do not go over-budget.
Tip #3: Know the Market
Often, when investors fail to make a profit, it is because they did not take the time to research the market prior to making a purchase. An understanding of the cyclical nature of real estate is something that eludes many, even experts. Be sure to take the time to understand the market and the dynamics in the area where you plan to invest. Find out about available amenities, vacancy rates and historical values of properties in the area.
If you are buying a property with the intention of leasing it out, be sure you know your customer-base. Understand what they are looking for in a vacation home or temporary housing and ensure that the property you plan to buy meets those needs. Rather than thinking about how you feel about living in the property, put yourself in the shoes of your target tenant and think about how they might feel view the property. Looking at the property through different eyes can sometimes be revealing.
Most of all, be sure you are aware of the risks and benefits associated with making the buy-to-let purchase and do not purchase the property unless you are sure it is what you want. In some cases, your money might be able to perform better elsewhere.
Tip #4: Have a Long-Term Strategy
Real estate investments can take time to pay off, so it is crucial that you have a long-term strategy for making a profit. Ask yourself the following questions: Are you looking for fast capital growth, or do you want to hold on the property long-term? What type of property do you need in order to meet your income goals? Are you investment goals reasonable?
The real estate market can be volatile so you should not count heavily on rising property values. Instead, build a strategy in which rental income is a big part of your total return. Purchasing rental properties in high-demand areas can provide you with sufficient income to avoid financial losses. If you are able to rent the properties at high enough rates, this can insulate you from losses caused by market fluctuations and interest rate hikes.
Remember to be realistic about your investment goals, take a long-term view, and manage your risks and your investment should pay off.
Tip #5: Employ the Services of a Management Company
When you buy an investment property, particularly one that is far from home, you can save yourself a lot of hassle by employing the services of a management company. These agencies, which typically consist of licensed real-estate agents, can ensure that your property is properly maintained and that utilities and other expenses are being handled in a timely manner.
Choose your management company with care. Some may try to get away with add-ons such as charging administrative fees when maintenance work must be done on your property. Discuss all fees and charges with the company prior to signing on with them.
Tip #6: Be Sure to Insure Your Investment
As with any investment, ensuring your property is a very good idea. Your tenants are responsible for covering their own property, but a landlord’s insurance policy will protect you from losses caused by damage to your investment property, including the structure of the home and any furnishings and décor you provided with it. Be sure to speak with a qualified insurance agent to learn more about insuring your investment property.