Investing in property is not something that is as simple as it sounds. There is an old adage essentially says: “Buy land, because they aren’t making any more of it.” While it is true that land is in limited supply, there still are costs associated with it, including taxes, insurance, maintenance, and others. And commercial property and other types of investment properties have yet further costs, and all types of property are prone to market fluctuations and changing values, as many learned the hard way during the Great Recession. To help you avoid making mistakes investing in property, here are a few pointers.
Be Certain of Financial Resources
Before you invest in any property, you need to assess your financial condition and ability to raise capital to use for your investments. That means you need to determine how much money and other liquid assets you have at your disposal as well as your potential for obtaining loans. If you have a strong credit rating, can make a sizeable down payment, and qualify for a low-interest loan, you stand a good chance of obtaining a solid investment property. If you can get pre-approved for a property loan, you are in an even stronger position and should be able to command a better price when negotiating a deal.
Know Your Goals and Risk Tolerance
As with any investment, there are risks that go along with investing in property. Fire, regulatory oversight, zoning laws, maintenance costs, and many other factors can turn a property investment into a loser. For those reasons and more, you need to establish your goals, ensure they are realistic, and make sure the cost of those goals fall within your tolerance for risk. If you overextend yourself and your goals can’t be met, you don’t want that loss to put you in the poor house.
You need to ensure you can tolerate the risk while also establishing realistic goals. Your goals should extend at least 10 years and include things like potential development, population growth, industry growth, demand growth, possible regulatory impacts, and many other factors. You also need to plan for the short-term, which includes how you will generate revenues, maintenance and improvements costs, taxes, and many other factors that will impact your ability to generate a profit and make a success of your investment.
Establish a Budget and Plan for Purchases
To be successful with an investment property, you need to budget for costs. Those costs can be continuous, like taxes, insurance, and maintenance, or limited, such as when making improvements, replacing equipment, or making repairs. If your budget isn’t in place, it will be entirely too easy to overextend your financial resources and wind up taking a loss and possibly going out of business.
You can create a purchase plan to help with your budgeting. A purchase plan provides a blueprint for your overall investment plan for the property you acquire and needs to take your goals into account. The purchase plan will take into account planned growth, improvements, income growth, and increased profitability over a period of years. Creating an effective and realistic purchase plan require diligence, research, appraisals, and more and will require future negotiations to become successful
Remain Informed and Focused
You must stay informed on the property you own and any you might want to buy in order to make the right moves at the right time. Key changes in local laws that impact how a property can be used, how it must be maintained, any potential environmental impacts, and a wide range of other factors all influence your potential for success.
Investing in real estate, like any investment options, require knowledge, time and experience. This is one of the reasons turnkey real estate is exploding in popularity. Experienced professionals can lead the way and provide investors with options that often provide safe, consistent returns.
Talk to one of our investment specialists for more information.