Real estate is a popular investment simply because property generally increases in value over time and it’s considered the safer option. The chances of losing money when investing in real estate as an asset, is less likely than when compared to investing in the stock market. For this reason, property investment returns are usually more reliable. Additionally, new home sales recorded a 43% increase despite the 2020 global pandemic. Are you interested in investing in real estate? Here are a few things you should consider before taking the big step.
- Assess your credit score
Before going ahead to invest in real estate, you need to take a quick look at your credit score. Good credit is a significant determinant of whether or not you qualify for a mortgage. It is worth knowing that just a few points on a score significantly impact the loan you get. Do you know your current score? If the answer is yes and it is a good score, go right ahead with it. If not, you will want to work on it by doing these:
- Pay all your debts
- Avoid closing unused credit cards
- Avoid requesting new credit cards
- Target your credit utilization at a maximum of 30%
- Pay attention to your credit reports and scrutinize any errors
- Be punctual with bill payments
Remember to target a credit score over 800. This will put you in a better position to receive favorable mortgage loans from the lender.
- Consider your goals
What is your primary purpose for wanting to invest in real estate? Are you looking at earning returns immediately or would you prefer building revenue over time? Knowing what plan to choose will enable you to cut down to the chase. For example, a short-term option will offer the opportunity to buy and resell. This translates into higher returns but comes with real risks. On the other hand, a long-term plan will mean considering rental options. Although you will not make high returns immediately, the property will appreciate over time. Most importantly, if you have the chance to invest in a high-end location, your rental revenue will grow, offering lower risks and revenue stability.
- Budget
It’s a good thing to dream big, but what is the essence of wishing to invest in property when you are not aware of whether you can afford it? Before investing, take a look at your budget to see how much you can spend on your investment. Besides, knowing your budget determines the property type, size, and location you can invest in. For example, with a $100,000 budget, you can get a decent four-bedroom house in the Detroit, Michigan areas. This is because the average home value in this part of the US is $42,800, and the likelihood of finding homes less than $100k is about 85% possible. In New York, a budget of $700,000 will most likely get you a three or four-bedroom house in a safe neighborhood. It is necessary to factor in the cost of agency fees when calculating your budget. Remember to include the cost of renovation (if required) and furnishing as well; it will help attend to any hidden charges.
- Location
Just like your budget, you cannot invest in real estate without considering the location of the property. Are you looking for a high-end area, a family-oriented neighborhood or perhaps, a business district? These are relevant factors to consider as they determine the purpose of the investment, its value, and cost. In addition to location, you must consider transportation as well. You should also consider its proximity to the various places, facilities and services you need regularly.
- Consider property management
Taking on the responsibility to manage your property on your own can be very challenging, which is why many property owners are not keen on taking it on. Managing a property or real estate is a tedious and time-consuming job. Without expertise, you as an investor will end up destroying a viable business venture. This is why you need excellent property management to handle this. Typically, property managers are responsible for the daily operations of any real estate under their command. Their duties include ensuring the property remains in excellent condition, tenant screening, rent collection, and even eviction procedures. Their job is an eclectic mix of responsibilities that only a trained agency or firm can handle. With a reliable property management team, you can rest assured knowing that your property is in good hands,
- Consider the type of tenant you want and their perspective
The topic of tenancy is beneficial for investors who choose either short or long-term options- as discussed earlier. Unfortunately, many real estate investors don’t do this. They fail to consider what a potential tenant or buyer will like about the property. By putting yourself in the shoes of a prospective buyer or tenant, you will be able to make strategic improvements to guarantee higher returns. Before investing, you should do more than look for a tenant who pays their rent within schedule. Go further to investigate their rental background and integrity. The fact that a tenant can pay their rent hassle-free does not mean they intend to protect your investment.
- Credibility
The issue of the credibility of the real estate agency you are working with is an essential factor to consider when investing in this industry. Conducting background checks on client satisfaction, reviews (positive and negative), and eligibility to sell property are critical. Run a check with your local developmental authority to be sure that you are conducting business in the right way and putting your financial future in the right hands. Ensure that there are no hidden charges in any agreements you are about to make with them before you go ahead to do so. Also, ensure that you read and understand any of the terms and conditions presented to you. If you are unsure of any clauses stated in the contract, contact a property attorney to explain legal clauses and any ambiguous statements, and give legal advice. It will help to ask the real estate company about their money-back policy. This way, should anything go wrong, you are sure to get reimbursed. An investment is a capital intensive financial move, and the last thing you want is to be conned out of your money.
- Know the real estate market
How in tune are you with the real estate market? Are you an avid reader of anything and everything housing, property, and real estate? If you are, it is a good sign that you will be a mindful and cautious investor. If you are not, now is the time to develop an appetite for it. Due to the many changes that occur in real estate, you would want to stay in tune to be sure you are making the right investments at the right time. With such foresight, you will know what to do with your investment when the tides change. It helps to track the pricing of houses in particular areas within or outside your state. For example, you should have noticed that real estate purchases increased in the second quarter of 2020. It happened because more people (those who could afford it) found it expedient to own permanent homes. Others who purchased extra property found it suitable to invest in an area that didn’t seem to be affected by the ripple effect of COVID-19.
It is not a strange phenomenon to see investors rushing for real estate. The deciding factor in a good or bad real estate investor is knowing what, where, and how to invest. Never rush off to invest. Instead, take your time to think it through first.
Real estate is a popular investment simply because property generally increases in value over time and it’s considered the safer option. The chances of losing money when investing in real estate as an asset, is less likely than when compared to investing in the stock market. For this reason, property investment returns are usually more reliable. Additionally, new home sales recorded a 43% increase despite the 2020 global pandemic. Are you interested in investing in real estate? Here are a few things you should consider before taking the big step.
- Assess your credit score
Before going ahead to invest in real estate, you need to take a quick look at your credit score. Good credit is a significant determinant of whether or not you qualify for a mortgage. It is worth knowing that just a few points on a score significantly impact the loan you get. Do you know your current score? If the answer is yes and it is a good score, go right ahead with it. If not, you will want to work on it by doing these:
- Pay all your debts
- Avoid closing unused credit cards
- Avoid requesting new credit cards
- Target your credit utilization at a maximum of 30%
- Pay attention to your credit reports and scrutinize any errors
- Be punctual with bill payments
Remember to target a credit score over 800. This will put you in a better position to receive favorable mortgage loans from the lender.
- Consider your goals
What is your primary purpose for wanting to invest in real estate? Are you looking at earning returns immediately or would you prefer building revenue over time? Knowing what plan to choose will enable you to cut down to the chase. For example, a short-term option will offer the opportunity to buy and resell. This translates into higher returns but comes with real risks. On the other hand, a long-term plan will mean considering rental options. Although you will not make high returns immediately, the property will appreciate over time. Most importantly, if you have the chance to invest in a high-end location, your rental revenue will grow, offering lower risks and revenue stability.
- Budget
It’s a good thing to dream big, but what is the essence of wishing to invest in property when you are not aware of whether you can afford it? Before investing, take a look at your budget to see how much you can spend on your investment. Besides, knowing your budget determines the property type, size, and location you can invest in. For example, with a $100,000 budget, you can get a decent four-bedroom house in the Detroit, Michigan areas. This is because the average home value in this part of the US is $42,800, and the likelihood of finding homes less than $100k is about 85% possible. In New York, a budget of $700,000 will most likely get you a three or four-bedroom house in a safe neighborhood. It is necessary to factor in the cost of agency fees when calculating your budget. Remember to include the cost of renovation (if required) and furnishing as well; it will help attend to any hidden charges.
- Location
Just like your budget, you cannot invest in real estate without considering the location of the property. Are you looking for a high-end area, a family-oriented neighborhood or perhaps, a business district? These are relevant factors to consider as they determine the purpose of the investment, its value, and cost. In addition to location, you must consider transportation as well. You should also consider its proximity to the various places, facilities and services you need regularly.
- Consider property management
Taking on the responsibility to manage your property on your own can be very challenging, which is why many property owners are not keen on taking it on. Managing a property or real estate is a tedious and time-consuming job. Without expertise, you as an investor will end up destroying a viable business venture. This is why you need excellent property management to handle this. Typically, property managers are responsible for the daily operations of any real estate under their command. Their duties include ensuring the property remains in excellent condition, tenant screening, rent collection, and even eviction procedures. Their job is an eclectic mix of responsibilities that only a trained agency or firm can handle. With a reliable property management team, you can rest assured knowing that your property is in good hands,
- Consider the type of tenant you want and their perspective
The topic of tenancy is beneficial for investors who choose either short or long-term options- as discussed earlier. Unfortunately, many real estate investors don’t do this. They fail to consider what a potential tenant or buyer will like about the property. By putting yourself in the shoes of a prospective buyer or tenant, you will be able to make strategic improvements to guarantee higher returns. Before investing, you should do more than look for a tenant who pays their rent within schedule. Go further to investigate their rental background and integrity. The fact that a tenant can pay their rent hassle-free does not mean they intend to protect your investment.
- Credibility
The issue of the credibility of the real estate agency you are working with is an essential factor to consider when investing in this industry. Conducting background checks on client satisfaction, reviews (positive and negative), and eligibility to sell property are critical. Run a check with your local developmental authority to be sure that you are conducting business in the right way and putting your financial future in the right hands. Ensure that there are no hidden charges in any agreements you are about to make with them before you go ahead to do so. Also, ensure that you read and understand any of the terms and conditions presented to you. If you are unsure of any clauses stated in the contract, contact a property attorney to explain legal clauses and any ambiguous statements, and give legal advice. It will help to ask the real estate company about their money-back policy. This way, should anything go wrong, you are sure to get reimbursed. An investment is a capital intensive financial move, and the last thing you want is to be conned out of your money.
- Know the real estate market
How in tune are you with the real estate market? Are you an avid reader of anything and everything housing, property, and real estate? If you are, it is a good sign that you will be a mindful and cautious investor. If you are not, now is the time to develop an appetite for it. Due to the many changes that occur in real estate, you would want to stay in tune to be sure you are making the right investments at the right time. With such foresight, you will know what to do with your investment when the tides change. It helps to track the pricing of houses in particular areas within or outside your state. For example, you should have noticed that real estate purchases increased in the second quarter of 2020. It happened because more people (those who could afford it) found it expedient to own permanent homes. Others who purchased extra property found it suitable to invest in an area that didn’t seem to be affected by the ripple effect of COVID-19.
It is not a strange phenomenon to see investors rushing for real estate. The deciding factor in a good or bad real estate investor is knowing what, where, and how to invest. Never rush off to invest. Instead, take your time to think it through first.
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