Real estate investing can be a profitable endeavor for anyone who has enough money to get started. Real estate is usually a great investment because of its stability and means of creating semi-passive income streams. If you need the space for your home or business, buying real estate is a much smarter choice than renting because you get to save money and reinvest later. While buying real estate seems like a safe and easy way to save and make money, getting started can be tricky. This article will cover some things to think about when buying real estate and pitfalls to avoid along the way.
10 Things to Think about When Buying Real Estate
If you are considering buying real estate—whether it’s for your first home or a business move — there are some things you should think about and questions you should ask before jumping in with both feet. Buying real estate can be a great move for young families and budding entrepreneurs alike, but just make sure you have done your homework.
Location, Location, Location
When buying real estate, one of the first things you need to look at is the location of the property. If it is a house, consider factors like school districts, neighborhood amenities, walkability, and crime rates. If you are buying real estate for business purposes, look at frontage space on the main road and accessibility.
What Do You Plan to Use the Property For?
If you have a specific business which you plan to operate at this property, you need to examine if the place fits your needs. If you plan to use it as rental property consider whether a typical family will want to live in the house. If you plan to live there, you will want to know if there is enough space for all of your children.
What Kinds of Improvements Are Needed to Make the Property Work for You?
Sometimes hidden gems can be found which will quickly serve your needs with only a few upgrades or improvements. If it’s a simple fix, it may be worth looking at places which don’t immediately come to mind. However, don’t get sucked into a trap where the to-do list becomes too long before you even get started. Make sure you know what you are getting yourself into and what kind of work will be required to get up and running.
What Are the Upfront Costs?
One of the biggest pitfalls of real estate investing is dealing with all the upfront costs. It is very difficult to understand how much you will truly pay once you consider all the taxes, fees, closing costs, legal payment, insurance, etc. Be sure to ask enough questions to get a good idea of how much money you will need.
Thinking about the Future—What’s the Resale Value?
When you buy a piece of property, you may think that you will hold on to it forever, but the reality is that we live in a very transient world, and you may sell it one day. Before you spend a lot of money buying real estate, make sure you check out the resale value. Will you be able to get your money back out of it when it is time? Is it comparable to other properties nearby? Don’t get stuck with a piece of property that you can’t get rid of.
What’s the History of the Property?
This one may sound strange, but take a look at the history of the property. You need to know if anything significant has happened on the property. Ask about natural disasters and incidents such as fire, but also ask about crime reports and any other historical events. If you are in an old town, make sure you aren’t buying a historic landmark which may require extra government compliance for the purpose of preservation.
Do You Have Enough Money for the Down Payments Needed When Buying Real Estate?
Down payments can require large sums of money. What’s more, if you don’t pay a large enough amount of money up front, your mortgage interest rate may be higher. In addition, not having a significant enough down payment may force you to take on extra fees through private mortgage insurance (PMI). Be sure to crunch the numbers and save up a good amount before you invest.
Do You Have Enough Money to Sustain the Property?
Just as upfront costs can be a bit of a burden, sustaining a property is no easy task. Hidden expenses are everywhere and if you don’t budget accordingly, you could find yourself in a lot of financial trouble. Make sure you know about HOA (Home Owners Association) fees, pest control, insurance, and property tax. Also, get an idea about the cost of utilities. Water, gas, electricity, sewage, and trash can all get very expensive.
Sometimes it’s good to look around the area when you are thinking about buying real estate. Are there other houses, businesses, or restaurants nearby? Is there new construction in the area. Is the area growing? You also may want to know if there are any things nearby which may cause problems or bring down your property value. A prison, a paper mill, a garbage dump, or a chemical factory could make living or working nearby an unpleasant experience.
Will the Property Save You Money or Generate Income?
Overall, you’ll need to do the math and look at your budget. If you find that the upfront costs and ongoing expenses are more than you will make from the property, it may not be worth it. At the same time, if you are currently renting an apartment and you can put that money towards the equity of your own house, it may be a great deal. If you need the space to operate your business, then you will have to compare your profits with the costs.
Whether you are just getting started in a real estate investment business or you are looking for your first home for your growing family, buying real estate can be an exciting and lucrative venture. However, buying real estate is not an easy task. Make sure you think about these 10 things before signing all that paperwork to purchase any property.