Real estate is one of the most popular forms of investment. People who purchase property often see it as an easy way to make a lot of money but that is a common misconception. Buying real estate is far more complex and should be thoroughly researched before monies are exchanged and contracts signed. While there is great potential to earn a profit, property investments are also a risky undertaking that should not be entered into without careful thought and planning.
Investment property is defined as residential, commercial or industrial real estate that is purchased for the purpose of making a profit. Gains can be made through rental income, resale equity, or both. The purchase can include land purchases with the intention of constructing buildings on it, derelict buildings that will be torn down to make way for new properties, and pre-existing structures that range from being in good condition, to fixer uppers, or somewhere in between. Regardless of what or why buyers are considering the investment, buying realty property has its rewards but it also has its risks.
Investing in property is not a short term or quick money-making venture. It is a long term financial undertaking that does not always reap immediate rewards. If you are considering any investment in residential, commercial, or industry realty, it is important to do your research first and create an investment plan. Before looking at real estate listings, you should know how much money you will need up front, what the operating and maintenance costs will be, the short and long term earning potential, and other income and expense commitments you will responsible for. If you are investing in property in another province or country, it is even more important to really look at your location and market before buying the place so you know exactly what you are getting into. Once you have a clear understanding of everything involved in real estate investing and you have the money saved to make an investment, you can start shopping. If you are new to the property investment industry, here are some things to look for when investing in real estate:
Type of Property
Investment real estate comes in several forms including land purchases, residential properties, commercial structures, and industrial spaces. Before shopping for your first investment, first choose what type of property you want to buy your reasons for choosing the space first. Knowing what kind of real estate you will be focusing on will help with the short and long term planning.
After you have decided on the type of property, it is time to look at the location of the place. A good location has a higher earnings potential, but a poorly situated lot is much riskier and will be more challenging to rent or resell. Whether you are buying real estate in your geographical area or outside your region or country, do your research first to see if the location is a good fit for the type and size of building you will be buying.
Real estate is not a cheap venture so investors must have money first before they can enter the realty investing market. Investment property also has more restrictions, licensing requirements, regulations, and higher tax fees that do not apply to personal purchases. Before bidding on investment property, buyers must have a substantial down payment saved and the financial means to cover the maintenance and operating costs up front. Therefore, before viewing any investment properties, it is important that you thoroughly analyse your budget first to make sure you can afford the lot.
Short and Long Term Demands
Real estate property is not a short term investment and should not be looked at as quick money maker. It is a long term venture that you could own for several years. Therefore, it is essential to consider the short and long term demands of the space you are looking at before buying the real estate. What might look like a good property investment now might not be a profitable space in a few years. Regardless of the type of investment property you are considering, do your research before buying the land to ensure it will meet your immediate and future money making goals.
After Purchase Expenses
There are many expenses to consider after you have purchased the property including operational bills, maintenance expenses, taxes, and repair bills. These expenditures can range greatly in price depending on the type of building or acreage you have purchased. When viewing a listing and planning your next step, examine all the expenses you will be responsible for after you purchase the property. Buyers who fail to clearly examine all their expenses can quickly find themselves in a financially perilous position that they cannot afford.
People buy real estate with the intention of making a profit. When you are looking for investment real estate, it is important to include in your research what the earnings potential could be after all the expenses have been covered. Once you have done the math, you will know if it is a good investment or not.
Rate of Return
Many people have the misconception that investing in real estate is guaranteed to inflate their bank accounts with high residual earnings. While the potential is there to make a lot of money on your investment property, there is also a risk that you could lose a considerable amount of money as well. Part of the profit potential planning includes your rate of return calculations. Before bidding on a listed property, calculate your monthly income and expenses to find out what your rate of return will be in the immediate and future timelines. Initially your rate of return (RoR) will be low, but that should improve over time. If the RoR looks bleak in the short and long term planning goals, you will have to decide if the property is worth buying.
Tax Benefits and Breaks
Whether you are looking at investing locally or buying property in another province or country, there are different tax obligations and breaks that you should be aware of first. When looking for the best real estate investment property investigate what tax benefits you are entitled to and the obligations you will be responsible for.
Real estate investing is expensive, challenging, exciting, and rewarding. Whether you are buying a vacant lot, a residential rental unit, commercial buildings, or an industrial lot, there are numerous risks and benefits to consider. Understanding the market from a business standpoint, thoroughly researching your venture, and clearly outlining your investment plan before looking at current real estate listings will help you find the right investment property for your short and long term goals.