The 10 most important factors in the field of real estate investment

Although real estate location is crucial, there are various other elements that play a role in deciding if an investment is suitable or not. Let’s examine the 10 most important factors in the field of real estate investment if you’re planning to invest in the real estate market.

1. Make offers 

To succeed in the real estate field, it’s essential to have a consistent stream of potential customers. These customers can include sellers, tenants, and buyers if you are selling properties. However, it is particularly important to focus on attracting sellers. By actively seeking out and presenting offers to a larger number of sellers. You will increase your chances of purchasing more properties.

2. Property Location

We are still saying property location remains the most crucial aspect for making money in real estate investment. Being close to amenities, green areas, beautiful views, and the reputation of the neighborhood greatly impact the value of residential properties. Similarly, being near markets, warehouses, transportation hubs, highways, and tax-exempt zones plays a significant role in determining the value of commercial properties.

To gather details about the potential of the area surrounding the property you are interested in you can reach out to the town hall or related public organizations responsible for zoning and urban planning. This will provide you with insights into the future development plans for the area. Enabling you to assess whether they align well or poorly with your own ideas for the property.

3. Pricing your property correctly

If you have expertise as a realtor, you will have the necessary knowledge to craft a comprehensive comparative market analysis (CMA). However, if you lack experience in selling properties. It is advisable to seek guidance from an experienced individual. It’s also important to gather information about the current market conditions, including similar properties that are currently listed, properties that have been sold or are currently under contract, as well as those that have failed to sell, as they provide valuable insights.

You need to know:

  • The duration of time that they remained available for purchase (at each price) prior to entering into a contractual agreement.
  • The recent selling prices of properties similar to yours.
  • The percentage variation between the initial price they asked for, the final price they asked for, and the price at which it was eventually sold.
  • What is the current number of properties available for sale and their corresponding prices?
  • Which properties had their prices set but failed to sell and were subsequently removed from the market?
  • How much have the prices of the properties that are still available for purchase changed?

4. Valuation of the Property

The valuation of the property holds significance in various aspects, such as securing financing for property purchases, determining the appropriate listing price, conducting investment analysis, obtaining insurance coverage, and facilitating taxation procedures.

There are three approaches that we have to consider during the valuation of real estate:

  1. The sales comparison approach: it’s the most common and appropriate method for evaluating properties, both new and old. It involves analyzing recently sold properties that have similar characteristics to the property being appraised.
  2. The cost approach: it’s a method used to determine the value of a property by subtracting the depreciation from the cost of the land and construction. This approach is commonly used for assessing the value of properties that are suitable for new construction.
  3. Income approach: The income approach is built on projected revenue streams, and it’s appropriate for leases.

5. The Purpose of Investment 

If there is not a clear purpose when investing in real estate, it can result in unforeseen consequences, such as financial distress, particularly if the investment is secured by a mortgage. 

First, you have to set your goal and then make the right plan to achieve it, for example.

  • If your goal is to “buy for personal use” in this case, you will not only save money on rent but also have the advantage of being able to enjoy the property in person while also benefiting from the potential increase in its value.
  • If your goal is to “buy and rent properties,” this provides stable revenue and potential long-term growth in value. However, it requires mentality and the ability to deal with potential conflicts and legal issues, deal with tenants, and supervise maintenance and necessary repairs.
  • If your goal is “buy and sell (short term)”, there is a suitable strategy for quick, modest, or moderate gains. The usual approach involves buying and selling properties that are still under construction to make a profit once they are completed.
  • If your goal is to “sell and buy in the long term”, the focus is usually on estimating significant intrinsic value over a long period of time. Offers other options for aligning with long-term goals, such as the “savings plan” retirement plan.

6. Be Careful with Leverage

Loans can be helpful, but they can also be expensive. When you take out a loan, you are essentially sacrificing your future earnings in order to have immediate benefits, but you also have to pay interest over a long period of time. It is important to know how to manage loans like this and avoid accumulating too much debt or becoming overextended. Even people who are knowledgeable about real estate can struggle with the consequences of being overextended during difficult market conditions. High debt can lead to a lack of available funds, which can ultimately result in the failure of real estate projects.

7. Indirect Investments in Real Estate

Not everyone is suited for the long-term management of physical properties. However, there are alternative options available that enable you to indirectly invest in the real estate investment sector.

Explore alternative methods for investing in real estate. For example,

  • Real estate investment trusts (REITs):  They allow individuals to invest in real estate without having to buy, manage, or finance properties themselves. Additionally, they have certain tax advantages, such as not having to pay corporate taxes as long as they distribute at least 90% of their taxable income to shareholders.
  • Mortgage-backed securities (MBS)
  • Real estate company stocks
  • Mutual funds and ETFs that specifically target the real estate industry
  • Mortgage bonds

8. Your Credit Score 

Your eligibility for a mortgage and the terms offered by your lender are influenced by your credit score. Having a higher credit score may result in more favorable terms, leading to significant savings in the long run.

If your score exceeds 800, it is excellent and will aid in your eligibility for the most favorable mortgage options.

Tips to provide your credit score 

  • It is advisable to keep open any credit cards that you are not being charged annual fees for.
  • Ensure that all bills are paid punctually by establishing automated payments or setting up reminders.
  • Strive to keep your credit utilization below 30%.
  • Pay down debt.
  • Try to minimize requests for new credit and avoid “hard” inquiries.

9. Overall Real Estate Market

It’s advisable to purchase properties at a low price and sell them at a higher price. The real estate market is not stable, so it is crucial to stay informed about the current trends. Additionally, keeping track of mortgage rates is essential as it allows you to minimize your financing expenses, if feasible.

Keep yourself informed about new trends for :

  • New construction.
  • Mortgage rates.
  • home prices and property sales (in general and in the specific market you are interested in).
  • Property inventory.
  • Foreclosures “It’s a lawful procedure that permits creditors to retrieve the unpaid loan amount by assuming possession of and selling the property held as collateral.”

10. Expected Cash Flows and Profit Opportunities

A favorable cash flow is essential to ensuring a monetary return on an investment property. In order to achieve your goals, it is necessary to create forecasts for the different ways you can generate income and expenses:

  • Anticipated monetary stream from rental earnings (landlords benefit from inflation in terms of rental income).
  • Anticipated boost in the fundamental worth attributed to the growth of prices over an extended period.
  • Advantages of depreciating assets (along with potential tax advantages).
  • Evaluating the costs and benefits of renovating a property before selling it in order to achieve a higher selling price.
  • Comparing the costs and benefits of loans obtained with a mortgage versus the increase in value of the property.

At the end of our article on The 10 most important factors in the field of real estate investment, We would like to clarify that investing in real estate can be beneficial for diversifying your investment portfolio. Typically, real estate is not strongly connected to other primary asset classes, which means that when the stock market is performing poorly, real estate values tend to rise. Additionally, investing in real estate can generate a stable income, a significant increase in value over time, tax benefits, and competitive returns with manageable risk. Overall, real estate investment is considered a wise investment option.