What to Consider with a Real Estate Investment
Investing in real estate is a very exciting and fulfilling decision, but there are some things to consider when you’re making plans for your money. Here’s what you need to keep in mind.
Location of the Property
You’ve probably heard a thousand times that location is the most important part of buying property. Well, the old expression isn’t wrong. Even the most beautiful and modern home in the world wouldn’t be worth a fraction of its potential if it’s in the wrong neighborhood. When you’re looking to invest, think carefully about the area you’re choosing.
Are you close to entertainment, shopping, and interstates? Is there a big tourist attraction nearby such as a raceway, state park, or beach? The closer the property is to “civilization,” the more value it’s going to have.
Other homes near your property can have a big impact, too. If your home is near college rentals where there is little upkeep, it will reflect poorly on your home. This can be especially crucial if you plan to flip a home. You can never get a proper return on your investment – or your sweat equity – if you put a lot of money in a home that’s too expensive for the neighborhood.
Even if the property you’re looking at has endless potential, the actual appraisal value is very important, primarily because this number is what’s going to determine your financing options. Remember, you should always be able to keep the purchase price and renovation cost at or below your total budget (which should be less than the finished appraisal price). Many investors make the mistake of putting too much into renovations and cut down on their own profits.
Be clear about what you intend to do with the property before you purchase it. Your budget and timeline will all depend on your end goal. Regardless of whether you’re going to use it yourself, rent it, lease it, sell it in the short term, or sell it in the long term, you must make a decision from the outset.
The actual cost and profit margins are crucial. Once you have everything else lined up, you still need to make sure the risk is reasonable before you sign anything. Carefully consider all your numbers and make sure you leave some wiggle room for unpleasant surprises. If it won’t work, don’t force it. It’s better to wait for the right opportunity than risk your financial future now.