If you are considering making an investment in real estate, there are probably a million questions going through your mind. Investing in real estate is tricky and can be a bit of a gamble if you don’t know what you’re doing. However, it can be one of the best investments you will ever make, if you do your homework.
Decide on your budget
This may seem obvious, but before you start looking for properties to invest in, you need to have a realistic idea about what you can and cannot afford. Your investment in a property is not just a one-time thing; it will require regular maintenance and upkeep. Before you start shopping around, come up with a budget plan that includes unexpected costs, and see if you can realistically afford to invest in real estate at this time in your life.
Understand Leverage and Appreciation
These are two of the most important things when it comes to investment property, and you will need to understand them if you want your investment to pay off.
Appreciation is when your property’s value increases over a period of time. So, if your property was worth 400,000 dollars the year you bought it, but it is worth 450,000 two years later, then it has appreciated in value. So considering whether or not your property will appreciate is extremely important when you make the decision to invest.
If you plan on selling or renting out a property, you need to consider the carrying cost. This is basically the amount of money that you will be spending until a transaction has taken place. If you own a property, you have to consider the costs that you will have each month, such as your monthly mortgage payments, utilities and maintenance.
A property that you won’t be able to sell or rent out for at least the amount you have paid for its carrying cost is simply a bad investment. Ideally your property should be sold or rented out for much more than it has or will cost you.
Have a Backup Plan
At the end of the day, no matter how much research you do; there will always be things beyond your control. It is impossible to control the market, and even though you may have made a sound investment decision, the market could change over time, causing your property’s value to go down.
This could be devastating, especially if you don’t have a backup plan. An example of a backup plan could be to rent your property out until the market has stabilized and you can get the right price again. Thinking ahead is important with any investment, but especially with real estate.