In the past, people chose to invest in stock but, in recent years, trends have shown millennials taking an interest in investing in real estate instead. Real estate has always been a popular choice for avid investors due to its several benefits, such as excellent returns, diversification, predictable cash flow, and tax advantages. With a knack for real estate investing, you can quickly build a steady stream of wealth.
However, just like every other instrument in the finance sector, real estate investing isn’t easy. From the careful evaluation of a property to identifying the movement of local markets, you need to consider a lot of factors before investing in a property.
Luckily, some tips and tricks can help give you an edge whenever you’re considering investing in a real estate property. Here are our top tips for real estate investment success that you must know about:
1. Figure Out Your Financing
This is especially important if you’re new to investing in real estate for commercial properties. Your expenses will involve more than property costs and realtor commissions. Commercial properties are hefty investments, and you will most probably have to acquire financing before investing in one.
It’s always better to consult a professional who can help guide your financing options and give you an idea of how much investment will be required. You should consider every possible option available. Talk to different banks and lenders about your budget and determine the loan amount you’re qualifying for. Banks will typically offer financing based on financial statements and proof that the business will yield profits.
Additionally, suppose financing is an issue for a commercial real estate property, such as an office building. In that case, you should consider mezzanine financing, which will provide you with quick funding for your project without refinancing your mortgage. It’ll help you avoid prepayment penalties, giving you immediate liquidity, and helping you maintain your interest rate.
2. Address the Risk
Before investing in commercial property, you must remind yourself that every investment has a certain degree of risk involved. Before you put your money, you need to account for all the potential risks.
In fact, it’s always a good idea to not be too optimistic and, instead, adopt a pessimistic approach. You should be prepared to not receive any rent payments for the type of commercial property, like offices, in the first few months. Additionally, you also need to be open to the chance that tenants may not fill up your property completely. To assess your risk factor, you should determine the geographical location, market trends, and the building’s history before purchasing the property.
3. Buy Pre-Construction Properties
Pre-construction properties are an excellent option to consider due to various reasons. It gives you the chance to maximize your return on investment since you’ll have to invest less money initially and get more in the future. This is because pre-constructed properties are obviously not as expensive as those that are fully built.
Additionally, you don’t have to spend too much on maintenance, although you might have to invest in areas where the workmanship isn’t up to the mark. Contrary to what you may think, investing in pre-construction homes isn’t a new concept and is actually quite popular in big cities like Toronto. Many people like to customize their properties, and this phase will allow you to make adjustments to boost your property’s values and differentiate it from other homes in the area at the same time.
4. Understand Real Estate Terminologies
You might not know this, but even the most experienced investors have issues with getting a grasp on the complicated terminologies in the commercial real estate sector. A critical aspect of getting into this field is to familiarize yourself with terms, such as cost of occupancy, cap rate, net/gross operating income, appreciation potential, etc.
When you understand such terms, you’ll be surprised at how much they’ll help you ensure you’re investing in the right commercial property. You should start by downloading real estate apps that will help you understand the most common terms used by investors.
5. Know the Market
Having a comprehensive understanding of the market is an excellent way of avoiding problems later on. Knowing the market of a real estate property can help you determine its price and value. It also helps you understand the rent that’s typically charged in the area and how you can renovate the property to make it more appealing to prospective buyers.
For instance, if families occupy the area, it’s not a good idea to reduce the number of bedrooms or add features, such as a hot tub, that families might not appreciate. For a detailed market analysis, start by collecting data such as demographics, competitors’ performance, economic, social, and political climate, and financing information to evaluate the environment you’re considering.
6. Remember Environment Issues
You’d be surprised how many property owners get on the wrong side of the law because they dump waste carelessly. As the owner, it’s your responsibility to ensure your activities are environmentally conscious.
This involves multiple things. First, you need to ensure your tenants are carrying out adequate property waste disposal, even if the waste that’s left behind was the previous tenant’s issue. Additionally, suppose the property in question is an office building. In that case, you need to ensure all activities carried out aren’t negatively impacting the environment and don’t raise any red flags.
7. Consider the class
Many investors make the mistake of developing properties that aren’t the best in a specific area. One of the biggest errors you can make is investing in property and turning it into something that the local market does not want. An example of this would be creating a luxurious property in an area occupied by the working class.
It would be best if you avoided “over-building” and built a property that the surrounding class demands. Don’t go for the fanciest property; it’s extremely important to get the essentials down in order first. Focus on fixing anything that’s broken or damaged and make changes, such as two-tone paint that’ll stand out but not break the bank.
8. Maximize the value
You’d be surprised how many ways there are to add value to a property and get more profit out of it. Changes such as installing an ATM or renting out an area to a bank can help you maximize a real estate property’s value. If you’re considering a commercial property like an apartment, you can offer value-added services such as trash pickups or adding a concierge.
Once you manage to make the property more attractive, you can naturally charge a higher rent for it. It would help if you also considered house flipping, which involves buying a house, fixing it up, and quickly selling it for a profit.
Final Thoughts
Real estate is an excellent investment option if you’re looking for financial success. There are plenty of tips and tricks you can explore to make the most of your real estate property investment, and trying out the ones listed above is an excellent place to start.
Before you put money down on a property, it’s vital to get an excellent grasp on the basics. Make sure you spend considerable time learning how investing works, and don’t be afraid of reaching out to an expert for sound advice. If you put in the work, you’re bound to get a return.
