Wise Investing In Real Estate Industry

1. Choose The Right Market And The Right Time To Enter The Market

If you want to invest in real estate and make good returns, you will have to understand what is happening both on the local scene and the national economy. However, the value of your real estate and its potential to grow in price is particularly influenced by the immediate economic factors where your property is located.

A quick way to avoid bad investments in real estate is to avoid buying what is simply hot in the market. An investment opportunity may promise high appreciation rates or rising rates in the future, but investors risk losing a lot of money when they buy real estate at the top of the market.

Real estate markets move in cycles together with economic growth. However, every real estate market is different from another; different investment properties are in different stages of development and will greatly differ based on location, price, size, potential, and other factors. You have to go for properties ripe for development, with rising prices, are affordable, require reasonable construction capital, and have great potential for value increase.

Your precise location should determine the evaluation criteria you use to shop for a suitable real estate investment deal. Often, the highest supply of newly constructed units is observed after a sustained period of peak demand for housing. What follows is a glut – an oversupply of housing units with low property prices. The property bust typically lasts for 1 to 3 years before a minimum price is established and the market starts to rise gradually.

All successful real estate investments must be focused on identifying properties in the ideal locations. Look for areas with high population figures and good public and social amenities. Other factors to look out for include:

Extremely low levels of crime

Quality education institutions

Ample supply of parks, leisure, and other green spaces

Access to healthcare facilities

Family-friendly neighborhood and culture

Availability public transport

Access to retail spaces and restaurants

Ample walking and bicycle spaces

Areas with the above features will have a high demand for real estate. When the supply for housing is the same as the demand, investors should not the opportunity to enter the market pass by because housing prices are relatively low.

Also, avoid investing where property markets are driven by a single economic contributor like the auto industry or tourism. For instance, Detroit is an example of an area whose economy was heavily dependent on the auto industry. When the industry collapsed, the demand for real estate fell and a lot of properties lost value. In many instances, vacancy rates remained high for rental real estate, as tenants could not secure work in the area.

In an area with fewer job opportunities, many people are unwilling and unable to rent a house in the area and live there. Consequently, there are many vacant houses because there are more houses than the tenants willing to rent them. In scientific terms, when the demand is lower than the supply, prices fall.

2. Buy Property When The Prices Are Low

Investing in real estate is like buying stocks that pay dividends take a look at this Investment Trust range. The overall return at the end of your asset-holding period depends on the price at which you bought the property/commodity.

But that is not all; the property or stock needs to be worth a lot more in the future (when you exit) to justify the low buying price of the property/commodity. Otherwise, there is no financial gain in buying an asset at a low price if its market value cannot go any higher in the future. 

3. Invest In The Hidden Real Estate Market

The best approach for buying real estate is targeting distressed properties to obtain a price below the fair market price of the property. We are not talking about foreclosure auctions; these can yield good deals but most distressed properties are in urgent need of renovations, which can be expensive.

We advise that your concentrate on distressed properties way before they are put on the market. For instance, a couple that is undergoing a divorce or a family willing to sell their late mother’s house which is in good condition can be good opportunities to secure potentially-rewarding property investments.

4. Accurately Determine All Your Costs Before You Spend

You have to master all your costs upfront, particularly if you are a beginner in real estate investment. You have to consider costs like property acquisition costs and realtor commissions. Also, include repair costs if you need to carry out any renovation work on the house.

Unfortunately, it is not always easy to accurately determine the repair costs unless you are an experienced real estate investor. Examples of common repair work may include cracked foundations, faulty electrical systems, and pest invasion.

Many inexperienced home buyers get it wrong by thinking they can fix most housing problems by simple means such as adding a little layer of coat or through some DIY work during the weekends. Unluckily for them, most forms of DIY home repairs end up lessening the value of the house. Unless you are professionally trained, fixing some repairs like electrical and plumbing works by yourself may permanently damage the house and render it unsellable.

Other costs you must consider in your investment are closing costs, utilities, insurance.

5. Study And Understand The Market

You have to understand the market to avoid losing money in your property investment plan. This is because understanding the market will help determine the accurate price of the real estate you want to acquire. To understand the market, you have to know parameters like the price of a house in a given neighborhood per square foot, and how much rent you can charge if you were to lease out the space.

Come up with minor and innovative designs to renovate the building and make it more appealing to a buyer/tenant looking for housing space in the area.

Avoid the rookie mistake of reducing the number of bedrooms in a house located in a family-friendly area. Also, do not minimize the size of the closet or reduce the master bath to add a hot tub that is out-of-keeping with the local community. Do not get rid of a good yard to put up a pool if there is no demand for it. Target regions like the metro Atlanta area which have witnessed sharp growth in the real estate market.

The Atlanta real estate market has seen housing prices rise by about 10% each year in the last few years. However, housing prices in Atlanta had initially fallen in 2017, before readjusting. Today, house prices have reached the 2006-high but are more affordable now because of changes in inflation. You will greatly increase your chances of success in real estate investment if you commit time and effort to understanding the local property market.

6. Identify And Manage Your Risks In Real Estate Investment

One way to avoid too much risk in real estate investments is limiting the amount of debt you take. When buying an investment property, as a rule of thumb, try raising at least 10% of the price of the property and borrowing the rest. 20% is even better because it excludes Private Mortgage Insurance (PMI) and affords a low-interest rate loan.

Another method of managing risk is maintaining a big cash reserve. You will reduce the probability of selling your property at a loss if you maintain a cash reserve to serve the property before you have to sell. Also, a large cash reserve allows you to pay for emergent repair bills when preparing the property for sale. It is possible to request a hard money lender for $20,000 to fix the house but the interest on such a debt will likely wipe off all your profit margins.

If you can manage real estate investment risk in the right manner, then you can massively increase your chances of making tidy profits in the property industry.

Do not buy a property that will not make you any profits simply because you are afraid of missing out on the opportunity. Do not fall in love with a real estate investment property unless the financial numbers make sense because you will not be living there.

Whether you do not want fixer-upper properties, you are scared you will lose your money, or trying to improve your financial position, identify your appetite for risk and come up with practical ways to manage the investment risk before buying the property. If you would rather avoid the hassle of fixing and flipping houses, go for turnkey real estate instead.