This is a question you will always try to answer when starting out as a real estate investor. In my view, real estate could be a bad or good investment depending on what kind of real estate option you have undertaken as an investor.
For instance, if a novice real estate investor starts buying a house using a mortgage and holds it so that they can sell it later at a profit, This kind of investment has very limited chances of success. This is because the cost of maintaining a house, interest associated with a mortgage, and resale value often result in negative capital gain.
On the other hand, if you, as an investor, buy a house on mortgage and rent it out, you will be earning a monthly income that you can use to offset the mortgage. This will not only reduce the burden on you but also increase your chances of having a positive capital gain when reselling.
From the above examples, real estate investing is profitable when proper research is done and the best real estate option is chosen based on possible outcomes at the end of the investment period.
Factors to consider in making a real estate business successful.
Location of the property
The success of any real estate investment is widely determined by the property’s location. This has been the basic principle in real estate. If you purchase a property where it’s in a bad location, then you will face several problems, which include low occupancy of your property and little or no offers when you list your property for sale in the future.
In many cases, real estate investors are advised to look for properties in the best location and in bad condition. A bad condition in which, when they make repairs, they will be in a position to make a big profit margin.
Expected Cash Flows and Profit Opportunities
This is the most overlooked aspect by investors. For experienced realtors, they will tell you that you need to know your arithmetic properly before making an offer.
Even if the seller has set a price while making a listing, that price is never fixed. Try to negotiate for a good discount.
If the property is in a good location and in bad condition, you have an opportunity to renovate and then sell at a good profit.
New Construction vs. Buying an Existing Property
Buying an existing house is often expensive and unaffordable for most investors. If at all you will be able to make a purchase, you will need to take out a mortgage, which often attracts interest and will make the value of the property further out of reach.
Besides the mortgage being expensive, sometimes the conditions that come with the loan are not favorable to all investors.
A credit score is a determining factor for anyone seeking a mortgage. Ensure that you have a good credit score before applying for a mortgage.
The alternative route to owning a property in the desired location is to buy a piece of land and then start building.
According to Reuben Kimani, Username Investment Limited CEO, buying land at a strategic location is a good step towards a successful investment. Buying vacant land is the easiest and cheapest way of penetrating into real estate.
Investment purpose and investment Horizon
Understanding the purpose of your investment makes it easier to select the best real estate option for you. If you need a monthly stream of income, you will possibly need to buy a house that is in a ready state to rent out.
If you are a person who is interested in buying and flipping houses, then time factor and cost need to be your top priorities if you want to make a good profit margin. You need to use the least time possible.
