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4 Factors to Consider Before Investing in Real Estate

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4 Factors to Consider Before Investing in Real Estate

Investing your hard-earned cash into real estate may seem like a much safer investment than investing in the stock market. While no one truly knows what the stock market will do from day to day, there’s almost no question that the land you own today will just as much – and probably more – as time goes on.

However, this doesn’t mean that investing in real estate is a 100% foolproof way to earn some extra cash throughout the years. There are many factors to consider when deciding whether or not to purchase a lot of land. If you don’t know what you’re getting into, you might end up getting yourself in more trouble than it’s worth.

Know Your Purpose

Well, duh: Your purpose is to make money, right?

That’s pretty obvious.

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But you need to think about how you want to make money through your real estate investments.

Are you looking to make some quick cash off of a sure thing, or are you looking to invest in the long haul? Do you plan on improving the property you purchase, or leaving it as is? Do you want to rent the property out to other tenants, or is your prime motive to sell for a profit?

If you don’t really know what you plan on doing with a piece of property once you purchase it, you shouldn’t be investing in it in the first place.

On the other hand, once you know what you plan on doing with your investment, you’ll be able to focus your efforts in order to maximize your potential profits.

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Know the Property and Area

You can’t just decide to purchase property without understanding the its nuances, as well as the nuances of the surrounding area.

Okay, you can. But you definitely shouldn’t.

Different factors come into play depending on whether you’re purchasing property in a residential or commercial area. This includes leasing terms, interest rates, and other factors which will ultimately affect your bottom line.

Are you looking to invest in high-demand areas or more low-end housing? Once again, this all depends on your purposes for investing, as well as the amount of time and energy you can expend working on the property.

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Know the Market

You might know exactly what piece of property you want to invest in.

You might know exactly what you’re going to do with the property once it’s yours.

However, there are factors beyond your control that determine whether or not now is the right time to invest your money.

Just as when investing in the stock market, when it comes to investing in real estate you want to buy low, and sell high. That’s pretty straightforward: If you want to make money by flipping your investment, you’ll want to sell your property for more than you bought it for.

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But if your plan is to rent out your property, you need to know whether or not people or businesses looking to live or operate in the area are able to afford a price that will make the investment worth it on your end. In other words, you need to know that your property isn’t going to just sit there with a “For Rent” sign for months while you pick up the monthly cost of maintaining it without any income to show for it.

Know the True Cost of Investing

As alluded to, investing in real estate isn’t as simple as shelling out one lump sum payment and watching dividends roll in.

No matter which type of property – residential or commercial – you invest in, you’ll accrue costs throughout your ownership of the property on a monthly basis. You’ll want to anticipate these costs – such as for maintenance, utilities, taxes, and interest rates – so you’ll have a good idea of your net profit per month.

You’ll want to obtain copies of the amount paid toward utilities, taxes, and insurance for the property in years past. Of course, these documents will only give you a general idea of future expenses, but it’s much better than going in blind.

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Regarding loans available and interest rates being offered, consult a mortgage broker. They’ll work to find you the best deal possible that saves you money on interest payments that can ultimately be used to improve the quality of your newly purchased property.

Featured photo credit: Real Estate Photography / Marcel Suliman / Flickr via farm4.staticflickr.com

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