Do’s and Don’ts When Investing in Real Estate
Investing in real estate is a big decision that needs to be considered carefully, before a step is made. Here are a few pointers to guide you to work out if real estate investment is right for you and to make a good investment decisions.
Do: Consider it as a diversification tool
Owning property in addition to owning traditional investment methods like stocks and bonds, diversifies your investment portfolio and provides alternative streams of income to reduce the impact your recurring expenses has on your finances. Investing in property is only considered to be a gain as property is known to appreciate and not depreciate in value. Real estate can diversify your assets only if it’s a component of your net worth. Consider locations when finally deciding to buy property. This is a huge factor in buying property with a high resale value.
Don’t: Put all your eggs in one basket
Just as real estate provides a diversification of assets, so it is easy to concentrate all your holdings in one asset. Make sure that when investing in property, you do not invest in a property that represents a large portion of your net worth. The real estate market is generally a volatile one and due to factors beyond your control, can influence the housing market. Before making a huge investment consider the interest rates, the current state of the housing market, location of property etc.
Do: Invest if you have a strong cash flow
Real estate can be cash intensive and having a large amount of extra cash will prove useful if you want to heavily invest in real estate. Real Estate is such that, a large amount of cash is required upfront and a stable cash flow to sustain the subsequent payments. A real estate investment can be referred to as highly illiquid hence the need to always have a cash reserve to cover for repair works, prolonged vacancies and past due tenants.
Don’t: Rush through your cash flow projections
As stated previously, real estate investment requires a large amount of extra cash. Investing in real estate without having a solid income may bring you to a halt midway into your investment. Do your research to obtain accurate income and expense figures to build a cash flow model which will determine how much to spend and how much to expect as income. If the math doesn’t add up, it may be wise to hold on investing till your cash flow opens up.
Do: Talk to someone who already owns an investment property
One way to educate yourself about investing in property is by speaking to someone who is already in the business. Hearing first hand experience on the pro’s and con’s of investing can be insightful especially to a first time investor. Investing in real estate is attractive to many individuals who like the idea of having a tangible asset with passive income potential. However, it is important to objectively assess the opportunity and be realistic about your potential net income.
In conclusion, you must pay considerable attention whenever you want to invest in property. You can speak to an investment broker on where to invest and which properties to invest in. At Devtraco Plus, we have sales agents who will take the time to discuss which of our properties is best for you and your purse.