Factors to Consider When Choosing a Property for Investment
What to know before investing in real estate? There are actually several key factors to consider when investing in real estate, including the property's quality, location, price and potential return, and others. Sabai Academy has collected all the basics in one place and is ready to share with you this ultimate guide. Let's get to the point.
The quality of a property is one of the key factors to consider because it has an obvious impact on real estate maintenance. For example, if a building has any problems with the layout or construction, it can increase costs in the future to keep it in good condition.
To avoid all possible problems regarding this aspect, one can pay special attention to quality control during construction. It's a process closely connected with paperwork, and many builders maintain written records of each step of the building process. Check what materials were used during construction, as well as the quality of the electrical and water supply connections, door and window panels, etc.
Location is another key aspect to consider when investing in real estate because it influences its price. When choosing a property, one should pay attention to several factors, such as:
- proximity to infrastructure;
- proximity to the sea (if it's a resort property);
- security of the area;
- the potential audience living in the location, etc.
Remember that residential property evaluations take into account proximity to amenities, green spaces, attractive views, and the status of the area.
Plans for the Location's Development
Choosing the right investment property also requires remembering that the perspective of the location isn't constant and may change over time. For example, the area may lose its appeal to residents and businesses or vice versa – become a point of attraction for local migration and business activity. The price and profitability of real estate will change accordingly. That's why it's worth studying the plans for building and developing the area, as well as the news background of the local media.
One of the best ways to fully understand the prospects of a building's vicinity that you're considering is to get in touch with the town hall or other government organizations in charge of zoning and urban planning. By having access to long-term regional planning, you can determine how beneficial or unfavorable it is to your plan for the property.
Price and Potential Profitability
Even an excellent property can be overvalued and take a very long time to pay off. That's why when choosing an investment property, you should consider its price and the potential yield from price growth/rental.
So what should you look for? Try to create predictions for the upcoming profit and expense models:
- Estimated cash flow from rental income.
- Expected increase in intrinsic value as a result of long-term price appreciation.
- Cost-benefit analysis of mortgaged loans vs. value appreciation.
Opportunity and Conditions of Use of Borrowed Funds
In some cases, if the country, location, or developer has a preferential loan program, the payment on which can be covered by the rent, the property can be purchased in whole or in part with borrowed money. This can be profitable, but at the same time, there are additional risks you should consider – for example, if the tenant moves out.
Real estate investments can offer reliable cash flow, significant appreciation, and competitive risk-adjusted returns, making them wise investments. Nevertheless, before investing in real estate, it's essential to consider several key things, such as the real estate investment risk factors mentioned in this article.
► Sabai Academy — a place where studying blockchain, crypto, fractional ownership, and real estate investments becomes a catalyst for capital growth!