Many people want to invest in promising properties in this day and age when the property industry is booming.
Why Invest In A Property?
Before you start your search for promising properties, it’s a good idea to understand why investing in property such as those offered by https://www.axisidahorealty.com and other real estate companies is considered a profitable investment. First off, property prices have increased consistently over the years, which means that if you buy a home today, there’s a possibility that it’ll be worth more tomorrow. Although this doesn’t always hold true, it’s a general trend that has been observed in the industry.
It also provides stability and security. Unlike stocks and bonds, real estate can give more predictable returns to your investment. For instance, you can make money through rental income. And as you pay down your mortgage, you’ll generate a steady cash flow. For this reason, many people see property as a solid investment that can provide them with financial security when they retire.
In addition, many countries feature tax breaks for people who invest in real estate. It means you save money during tax season because of deductions computed from the costs of owning, operating, and managing a property
What To Look For In A Property
Buying a real estate property is a major investment. It requires careful deliberation before making a decision. You have to consider even the tiniest details because they could probably turn out to be huge factors later on.
Here are six qualities that would make a real estate property worthy of your consideration. These factors are critical and should be given equal priority during selection:
1. Good Location
When looking for a promising real estate property, its location is the primary factor to consider. A great location is important for the property’s value proposition because it can increase or decrease your return on investment (ROI).
Make sure you assess the neighborhood where the property is located. To get a first-hand feel of the place, visit the area at different times of the day. It would give you an idea of what kind of crowd goes in and out of the location in the daytime and at night. It would also be advantageous if the neighborhood has large trees or if there’s a park or community center close by. If you want to go a step further, you may want to talk to some residents and ask how long they’ve stayed in the area and what they like best about the neighborhood.
Now, do some extensive research on the internet and find out all you can about the following:
- Crime rate: It’s advisable to evaluate the crime rate in your potential property’s surrounding area. Property values tend to decrease when there’s a high incidence of theft, robbery, assault, and gun violence in the neighborhood.
- History of commercial development or urbanization: Studying the development of commercial real estate properties in the area could give you an idea of future trends.
- Natural disaster risk: Research if the area is prone to natural disasters like floods, earthquakes, or hurricanes.
2. Easy Accessibility And Nearby Amenities
Another essential thing to consider when looking for a promising real estate property is its accessibility. There should be easy access to public transportation and major roadways, preferably with more than one point of entry. If you want your property to have a good resale value, it needs to be accessible enough so prospective buyers could conveniently commute to and from work. On the other hand, the property shouldn’t be too near busy roadways as it could cause its resale value to diminish.
It’s also vital that the property is situated near important amenities such as grocery stores, restaurants, retail shops, entertainment venues, healthcare facilities, and schools. A property that’s strategically located is generally more valuable either for residential or commercial purposes.
3. Valuation Of The Property
Aside from location and accessibility, another factor to consider when looking for a promising real estate property is the valuation of the property. It’s necessary to get a professional valuator to estimate the worth of the property if you were to resell it after some time.
Keep in mind that the value of property changes over time. The closer you are to a city, for example, the more valuable your property would be. That’s because properties near a city tend to have a higher resale value since they’re located in an area where development is constant.
The most common ways to determine the value of a property are as follows:
- Sales comparison approach: In this method, a potential property’s value is determined by looking at similar properties that have been sold in the past and considering their selling prices.
- Cost approach: This is another way to determine how much your potential property would be worth if you resell it. The cost approach is based on a building or land replacement cost. It’s computed by subtracting any expenses from the sale of a property up to this point in time.
- Income approach: Under this method, value is computed by looking at the potential income that a property generates after deducting expenses incurred in renting it out.
4. Expected Cash Flow
Sometimes, you can find an excellent real estate property with great value. However, if the property does not have the potential to generate a decent cash flow, it wouldn’t be sensible to buy such a property because its purchase price would not justify its expected income.
That’s why it’s necessary to estimate the expected cash flow of a property before deciding to buy it. This would give you an idea of whether the property is worth your investment or not. Generally, a wise real estate investment should generate an immediate positive cash flow. This means the income to be derived from the property is higher than what you have to pay to acquire it.
The 1% rule is a general guideline that states that a property should generate at least 1% of the purchase price as monthly income. It ensures that the property can cover its expenses, including mortgage or loan payments, insurance, and other costs associated with property ownership and maintenance.
For example, if the property costs you USD$300,000 it should have a monthly cash flow of at least USD$3,000 so it can pay for its expenses. If the cash flow is considerably less than that, then it might not be worth your investment. Although this rule is not carved in stone, it’s a good rule of thumb to follow when deciding if a real estate property is indeed promising.
5. Opportunities For Profit
There are two main categories of properties that are potentially worthy of investment if you want to apply the buy and sell approach, also called ‘flipping.’
The first category involves properties sold below current market value due to their owner’s financial difficulty. It could be that the property is overleveraged and run the risk of going into default. Another possible reason is the owner could no longer manage or maintain the property. The second category pertains to properties that are also sold below market value because of structural or design problems or other unfavorable conditions.
There is potential for a quick profit on your investment if you flip a property, which is essentially fixing it up to increase its value. However, it entails time and effort as it could involve a major renovation and not just cosmetic fixes. But you can maximize your profits if you’ve acquired the property at a lesser cost, then sell it at a much higher price. The ROI is even quicker if you can sell the refurbished property in six months or less.
6. Constant Development In The Area
Last but not least, be sure to find out how much development is happening in the area. You may check online forums to keep abreast of planned developments in the area or you may resort to pounding the pavement to check any ongoing development. If major businesses are relocating in the area or if you see that development is currently in the works or the planning stage, then it would be a good idea to invest in that property as its value is likely to go up in the future.
However, if there’s not much development, you might need to reconsider buying a property situated in that area. It would certainly be harder for you to make money off it than a property located where there’s a lot of commercial development.
Remember that development in an area can change over time, so staying updated on the latest news and information is essential. You can do this by checking online real estate websites or by subscribing to newsletters that talk about real estate investments.
The Bottom Line
When looking for a promising real estate property, it’s essential to consider the different factors affecting its future profitability. By following these tips, you’ll be able to make a more informed decision about whether or not a property is worth your investment.