Looking to buy property? Investing in real estate can be an exciting moment and a smart investment, but getting the ball rolling can feel overwhelming. There’s a lot to learn about property investment. For example, how do you know you’re making smart choices? Here, we’ve outlined six fundamentals of property investment so that you know where to start.
- Know what to look for in a property. Location is crucial in real estate – look for homes or apartments that are in attractive, safe neighborhoods, near good schools, and, if you live in a city, near public transportation. Get a property inspector to make sure the home has good structural integrity and consider how much, if any, you want to invest in renovations. If you’re looking to invest in multiple properties, it’s a good idea to look in different neighborhoods. This strategy will help you diversify your portfolio.
- Understand the market. A basic economic principle is that the supply of and demand for properties has a great effect on price. When researching a property, check the demand for real estate in that area. Online, you can research how long a home sits on the market, on average, in your neighborhood of interest. You can also check property devaluation in the area over time.
- Consider interest rates. When there is inflation in the economy, interest rates go up, whereas deflation generally causes interest rates to go down. When interest rates are low, it encourages activity in the market. For this reason, interest rates have an effect on how much property you can invest in, as well as how easy it will be to lease your rental properties. Consider how the economy affects you and your potential renters, and take a look at affordability indexes.
- Calculate the yield. Your yield is the annual return on the money you have invested in the property. How much do you anticipate renting the property for, and does that amount provide an annual yield higher than that you’d see if you invested your money in the bank? You want to buy a high-yield property.
- Look toward the future. What will the property be worth in the future? As the saying goes, you want to “buy low, sell high.” Take a look at published statistics on trends over time in house prices. Do you anticipate the neighborhood changing, gaining easier transportation, better schools, or more jobs? Will the supply of property in the area go up or down?
- Be realistic. Many people invest in property, but few are experts in property investment. You don’t need to know everything about the real estate market, but you do need to do your research and be aware that you can’t know everything. For this reason, it’s a good idea not to take big risks that you can’t afford. Be wary of promises of quick, lucrative profits from a property, and don’t trust that you know the market well enough to try to “flip” a property. With smart property investment, gains accumulate over time.
If you have concerns or if you don’t know where to find the information you want on a property, you should never hesitate to ask your real estate agent or a real estate professional you trust! They will help you make a great investment decision.