A Guide on Real Estate Investment

Real estate can be defined as the land together with any permanent improvement that has been attached to it, whether man-made or natural. Examples of these attachments include buildings, homes, water, minerals, trees, and fences. When planning to invest in real estate, it is important to consider several things.

Property location

Location of the real estate should be your main consideration when planning to invest in one. Proximity to green space, amenities, and scenic views factor significantly into residential property valuations. Nearness to warehouses, markets, freeways, tax-exempt areas, and transport hubs play an important role in the valuation of commercial properties.

Property valuation

Valuation of property is essential for financing during the buying process, listing price, insurance, taxation, and investment analysis. Some of the common methods of real estate valuation include:

  • The cost approach, which is ideal for new construction
  • Sales comparison approach, which is ideal for both old and new properties
  • The income approach, which is suitable for rentals

Investment horizon and investment purpose

Given the high-value investment and the low liquidity in real estate, the absence of clarity on purpose may cause unexpected results such as financial distress, particularly if the real estate is mortgaged. Before making an investment, you should consider the following things and identify the one that suits your needs best:

  • Buy and lease: This kind of investment will bring long-term value appreciation and regular income. Nevertheless, landlord temperament is necessary to handle legal issues, possible disputes, repair work and manage tenants.
  • Buy and self-use: This type of investment will help you save on rent and enjoy the benefit of self-utilization even as the value appreciates.
  • Buy and sell (long term) – This kind of investment is ideal if you are focusing on large intrinsic value appreciation over a long time duration.
  • Buy and sell (short term) – This is an ideal investment if you are planning to make a quick profit. Most of these kinds of investments are properties that are under construction and sold once the construction is complete.

The other things you should consider when planning to make a real estate investment include:

  • Profit opportunities and expected cash flows
  • Leverage
  • Existing property versus new construction
  • Indirect investment in real estate
  • Overall real estate market
  • Your credit score