Although many real estate investments stand to generate a healthy profit, this doesn’t mean that every potential investment opportunity is a surefire win. In fact, if you’re not careful, you’re liable to find yourself saddled with a property that costs you a lot more than it will ever make you.
Considering how much capital is at stake with most real estate investments, it’s in the best interest of all first-time investors to exercise discernment, ask the right questions and do their research. So, when making your first foray into real estate investment, take care to consider the following factors.
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Local Demand
When seeking out profitable real estate investments, it’s imperative that you take local demand into account. For example, if you’re looking to invest in a home or rental property, do some search into how much demand for housing the area in question has.
Unsurprisingly, housing demand tends to be more robust in populous areas with consistently high growth rates than in areas with low growth and shrinking populations. Furthermore, properties that are found in areas adjacent to busy, in-demand areas are generally able to fetch a hefty sum.
Local demand should also be considered for people looking to invest in office buildings, stores and other business spaces. In the absence of a strong local economy or job market, such investments can be a bit iffy.
Renovation Costs
As any experienced investor can tell you, many of the properties you come across will require repairs and/or renovations.
Although certain properties need a lot more work than others, it’s always a good idea to understand how much necessary repairs/renovations are going to cost before proceeding to make an offer.
With this in mind, make a point of getting estimates from various contractors before committing to invest in a property.
The benefits of this are twofold. For starters, obtaining estimates for necessary work will provide you with a solid idea of what a property is actually worth, thereby strengthening your hand at the bargaining table. Secondly, depending on how expensive said estimates are, you may ultimately deem a property an unwise investment.
General Condition Of The Property
As previously stated, many properties require repairs/renovations to generate the desired returns. However, the level of work a property requires may not be limited to its most glaringly obvious problems.
Some properties house problems that investors don’t become aware of until long after sales have gone through. In some instances, the sellers are genuinely unaware of these issues. Other times, they’re very much aware of them and actively hide them from unsuspecting buyers.
To help ensure that you don’t get stuck with a lemon of an investment, have every property that catches your interest inspected by a certified professional. No matter how detailed a walkthrough you do, there are a number of issues that can only be identified by seasoned pros.
So, even if a property appears to be in immaculate condition, you’d be wise to have it professionally inspected – and to make a formal inspection a prerequisite for the sale. Furthermore, sellers who vehemently push back against inspections should always be approached with suspicion.
Investment Options
There are a variety of different ways to invest in real estate. While solo investments can certainly generate big rewards, they tend to come with the highest levels of risk. After all, the more capital you put forth, the more you stand to lose.
So, if you’re not keen on the idea of being the sole investor, consider real estate crowdfunding, which involves multiple investors putting forth an equal amount of capital and sharing the profits generated by their investments.
You may also want to think about working with a real estate investment trust (REIT). If you’re currently asking yourself, “What’s an REIT?,” the short answer is it’s a company that specializes in profitable real estate investments.
Getting involved in real estate investment can provide you with an enviable amount of passive income. Still, this shouldn’t be taken to mean that every investment opportunity you happen upon represents a smart use of your capital.
Whereas some real estate investments can facilitate massive personal enrichment, others are likely to leave you with an acute case of buyer’s remorse. Fortunately, the pointers outlined above can prove helpful at minimizing risks and maximizing profits.
