Real estate accounts for one-third of the world’s total capital assets. It is one of the most lucrative business opportunities at present since it not only ensures long-term financial security but also helps to get a regular steady flow of income through rental properties. Another prominent benefit that you get is a substantial exemption on tax from owning rental properties. However, real estate investments could be a little tricky as it involves a lot of money and risk. Hence, you have to consider many things.
Commit these strategies to heart to ensure a safe real estate investment that helps you net sizable income.
1. Set a Clear Investment Purpose
Real Estate investment strategies differ according to the purpose. It is important to be very distinct about your own purpose to ensure minimum risk and maximum benefits. Your purpose should necessarily include your expected time period of returns besides other considerations. A lack of clarity in purpose can lead to unsatisfactory results.
2. Arrange for Down Payment and Be Careful About Loans
Investment properties are usually very expensive therefore, you must arrange for the required funds well in advance. How you finance your investment depends significantly on your investment goal. If you choose to take loans to buy a property, you commit your future income to get utility today at the cost of interest spread across many years. Decide on the type of mortgage that best fits your situation and be sure that you have a clear understanding of the terms of that loan. The tip is to secure a good amount for a down payment.
Loans might appear to be a very lucrative option but if not carefully planned, it can be land upon you a mess.
3. Choose an Apt Property Location
Location scouting is one of the key strategies to ensure profitability in real estate investments. A good location is subjective in that it may differ for a different purpose but it is mostly based on a static set of criteria. Pick on the one that boasts all essential qualities e.g. if you are investing in a condominium in Toronto, you can consider this development by the Mizrahi Developments situated at 1 Bloor Street W on Yonge and Bloor. An effective way to find out locations with benefits is to consider the ‘Starbucks Effect’.
4. Thorough Valuation of Property
You should be very well aware about the value of your property in order to ascertain the profit you can derive from it. Valuation of property in real estate implies determining the economic value of an investment. It can be done through various approaches namely-:
1.Sales-comparison Approach – It is a valuation method in which you compare your property to similar properties that have been sold in that area. Although it is not an exact science since the value of properties is very subjective, it greatly helps you to get an approximate idea of the value of your property.
2.Cost-Approach – it is the valuation method in which the property’s value is equal to the cost of land plus the total cost of construction minus depreciation. It is considered less reliable than other real estate valuation methods but can be useful in certain cases such as when evaluating new construction or a unique home with few comparable.
3. Income Approach – The income approach, also known as the income capitalization approach, is the method in which the value of the property is decided by calculating the income the property generates. The income is calculated by dividing the Net Operating Income by the Capitalization rate.
5. Inquire about HOA Rules
You have to conform to various rules for owning a condo. Homeowners Association is the organization that devises these rules. It covers up everything from resident behavior and architecture restrictions to common responsibilities and fees. The HOA imposes certain restrictions on rental properties. These restrictions vary from one condo to the other so you will have to carefully look for yours.
Investing in real estate could be a rewarding opportunity if you take care of the above-mentioned points.