Investing in real estate, residential or commercial, requires careful planning and consideration. Do not forget the financial planning and priorities that need to be decided before beginning your search. So, let’s make things easier. Below is a list of 5 factors to consider while investing in real estate.
Location Means a Lot
- Accessibility: Look for properties that enjoy easy access to major roads, highways, public transport systems, essentials, and more. This also enhances the property value.
- Amenities: When a property is located near schools, hospitals, malls, major shopping hubs, markets, etc. it gives a boost to its value, attractiveness and convenience to the residents (in case of a residential property).
- Neighborhood: A safe, clean, and well-maintained neighborhood is what one should look for. The overall vibe of the neighborhood, as well as the infrastructure, play a big role in property decisions.
- Future Development: Consider the upcoming developments in the area. Infrastructure such as metro lines or commercial hubs can potentially increase the value of the property in the long run. Certain nearby developments, such as dumpyards, can decrease the value of property.
Hence, if you are investing in real estate for faster appreciation and attracting more renters or buyers, then an urban property in a bustling area with good infrastructure is better than a property in a remote location.
Property Valuation
- Comparative Market Analysis: CMA is a process that compares the property you are interested in with similar properties sold recently in the area. This gives a clear idea about fair market value and current market trends.
- Income Approach: This method is commonly used for rental properties, where the property value is compared based on the expected rental income and other expenses incurred.
- Cost Approach: This method is more complex. It calculates the property value by calculating the cost of building a similar structure, considering the land cost and depreciation.
Hence, if you are eyeing a property to put on the rental market, then the income approach for calculating property value is best for you while investing in real estate.
Market Trends & Other Economic Factors
- Interest Rates: Higher interest rates dampen the real estate market. Lower interest rates make property buying more affordable and encourage more people to buy.
- Demand & Supply: Gauge the property supply and demand in the area as it will give a good idea about the potential for appreciation. Greater demand and lower supply will drive the prices up faster.
- Economic Growth: A growing economy increases job opportunities in cities and encourages people to move there, hence increasing real estate prices.
- Government Policy: Any tax incentives, subsidies, or Government regulations that benefit property buyers can impact the real estate market. Ensure to stay updated with such policies before investing in real estate.
Investment Purpose & Potential
- Long-term: If you are prepared to hold the property for some years and are looking for a long term investment, then look for a property in growing areas that have potential for future infrastructural development.
- Short-term: For short term gains, consider properties that can be renovated or flipped, or are under construction. The strategy however, involves high risks and requires good understanding and knowledge of the real estate market.
- Rental Income: If your goal is to gain rental income, look for properties in cities and areas with high rental demand or upcoming commercial hubs.
- Diversification: Many investors look to invest in real estate as a form of diversification of their investment portfolio. In that case, look for properties that spread the risk and complement your investment portfolio.
Financial Planning and Budgeting
- Down payment: Find out how much you can afford to pay upfront. Typically, a higher down payment reduces the amount of loan needed and makes it easier to manage monthly installments and expenses.
- Loan Eligibility: Check your loan eligibility from major banks based on your income, credit score, and other criteria. Compare interest rates from major financing institutes and banks. It is also a good idea to get pre-approved for a loan.
- Maintenance Costs: It is essential to factor in the costs of regular maintenance and repairs once you own a property. Older properties may require more upkeep impacting your overall investment returns.
- Insurance & Taxes: Consider the various insurances or property taxes to be paid while budgeting for a property as they will impact the cash flow and profitability.
By careful planning and considering all above factors, investing in real estate can be a highly lucrative opportunity and give golden results. By evaluating the factors based o n your requirements, you can make a smart investment that meets your goals and minimizes risk. Always remember to research!
