Investing in real estate is arguably one of the more profitable investments. Rents in cities across the world are rising every year. If you manage to obtain a property in a booming area, you are sure to reap much more than you invested. However, ironically enough, real estate investment is also fraught with numerous risks, in particular, a hypersensitivity to international macroeconomic conditions. Who can forget the 2008 global meltdown that saw real estate values crash worldwide? Therefore, before putting your hard earned money into a property, it is essential to understand the risks involved. Here are five essential tips to investing in real estate:
Commercial or Residential property?
It is a common dilemma that aspiring investors face: should they invest in a commercial or residential property. Various reports and surveys indicate that commercial property investment is the way to go. These properties have multiple advantages, including extended lease, and a smaller deposit required. Many residential lease contracts are up for annual renewal, but a commercial property lease is usually valid for years. Also, costs like water, electricity and yearly repair bills that are typically covered by a landlord are the responsibility of the tenant when it comes to a commercial lease.
Location Is Everything
If you invest in a property in an undesirable area, such as one that is geographically isolated, has no tourist attractions or local amenities or suffers from a high crime rate; you will find that making a profit will be a challenge. Instead, do your research and identify areas that are in demand, have ample commercial activity, easy road and public transport access and other features that make them attractive to people with high purchasing power. Alternatively, if you follow Than Merrill, a real estate investor with an eye for long-term investment opportunities, you will see that he and other real estate investment experts often look out for areas that are earmarked for further construction development on the outskirts of cities.
Before investing, it is essential to create a budget that takes into account repair costs and insurance. Sometimes the property in which you invest may not be in mint condition and might need much work – leaking roofs, subsidence, deteriorating foundations and the like are all common issues, particularly in older properties. Before you lease it out to potential tenants, you will have to address these repairs, which can set you back considerable sums. It is also prudent to take out a comprehensive insurance policy that will protect you in case of unforeseen circumstances or major emergencies, such as fire, flooding or other natural disasters.
The Right Timing
The global economy is extremely unpredictable with markets continually swinging to the extremes like a pendulum. It is a well-documented fact that economic upheavals hit the real estate market as hard as any sector. Therefore, before investing always remember to do ample research and study market trends. It’s crucial to consider GDP and wages growth, gauge consumer and investor confidence and other measures that can all provide useful signposts as to whether the timing is right to be committing yourself to such a critical strategic move.
The Right Advice
By no means in investing an easy business. It can be a veritable minefield of confusing terminology, tax considerations and legal mazes to navigate. Sometimes, tackling all these challenges alone without professional help can make you vulnerable to wrong decisions. It usually pays to Hire an accountant with the experience and expertise to provide the right advice and guidance as you assess your options.
Investing in real estate can be both profitable and risky. Nevertheless, with a little research, professional help and attention to market trends will help you make the investment decisions that are right for you and will set you up for a prosperous future.