Investing in real estate is a monumental decision, whether that investment is for potential profit or for personal use. There are several factors that you may want to keep in mind when choosing to invest in real estate that may alter or change your decision-making process.
Location
The adage goes “location, location, location” in business, and this is equally true when it comes to investing in real estate. Some properties may be more valuable than others simply because they’re in a more desirable locale. This can include being on the waterfront where applicable, access to green spaces, proximity to amenities and schools, etc. You should consider not only the current location of the property you’re considering purchasing; but also, how the neighborhood is likely to grow and evolve over time. For example, a property in a neighborhood undergoing gentrification may not be desirable now but could have large profitability in the future.
Valuation of the property
When seeking to invest in real estate, you should consider the value of the property itself and what may affect it in the future. Historic sales trends can be instructive of how others have valued the property in the past, and the potential for the current asking price to be an overvaluation rather than reflective of its true value. Additionally, property taxes, liens, and other potential expenses on the property can affect the value.
Investment purpose
The motive for investing is always important to consider. If you’re investing in a home for your own personal, private use, then you have dramatically different considerations compared to someone who is intending to buy the property and lease it to tenants or buy it for the purposes of flipping and making a short-term profit. Your motive for investment will affect the choice of what kind of property you buy, where, and whether a profit is your long or short-term incentive.
Expected profit
The price of real estate and overall inflation tends to increase over time. Getting a good return on your investment can be anticipated if inflation is high and you intend on leasing the property, for example. In this scenario, you can charge comparatively high rents while the overall value of your loan plummets. This can potentially lead to a rather large profit margin. Likewise, in a market where home values are appreciating quickly, flipping properties for a short-term profit might be the better overall strategy.
Overall Market
Finally, you should consider the overall market conditions. If you are already highly leveraged and the market is showing signs of an oncoming correction, then it might be better to hold off on your investment for a more advantageous time. Conversely, investing at the tail end of a correction can produce large profits when the market heats up again.
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