Wednesday, December 7, 2016

10 Tips for Making Money in Real Estate Investment

When investing in real estate, it pays to follow certain guidelines before making, and possibly regretting, such a costly decision. The following 10 tips will help you become a more successful real estate investor:

1. Do your research.


Before you buy a house for income generation, be sure to research historical price data for that particular neighborhood and country. Try to feel out whether housing prices in that area of town are rising, falling, or holding steady. Look up the selling prices of other homes in the house’s neighborhood. In this way, you will better know if this is the opportune time to buy your desired property.


2. Consider buying cheaper property.


If you buy an expensive home you will need to charge a higher rent; conversely, a cheaper home will mean more reasonable rent. Renters who pay a high monthly rent may just as easily move out and pay that money towards their own mortgage. Higher rent properties are a luxury, while cost-effective rents are a need. In other words, needs always outrank wants.


3. Add up all costs.


Don’t buy a property just because it is a “steal”. Consider all the costs of buying the property, including any needed repairs, utility bills, property insurance and taxes, and risk of vacancy. If possible, make a cash flow statement, or ask for a cash flow statement from the prior owners of the property (if it was used as a rental property). Collect as many documents as you can which detail the property’s utility and other costs.


4. Know your market.


Analyze your property, the type of neighborhood in which it is located, and what businesses or organizations are nearby. Would this property be suited for young professionals with no families? Would this property be better suited for renovation and resell to a family? Knowing what you are buying will help you better turn a profit on your property.


5. Consider cost of entry.


Depending on the country and even the state in which you buy your property, a significant amount of your money may be spent on purchasing fees. In Germany, for example, you may pay up to an additional 20%-25% of your house purchase price in fees and other charges. Knowing how much it will cost to purchase your income property will help ensure its profitability.


6. Consider capital growth.


Assess the neighborhood located around the property that you are buying. Are big corporations being built in the vicinity? Or are houses and buildings being shut down and demolished? Do you see evidence of quaint shops and shopping malls going up nearby? All these events will play a factor in your property’s future price at sale. They will also determine the demand for rental accommodation.


7. Consider cost of exit.


Different countries charge different capital gains tax on sold property. In Spain, a foreign seller may incur up to a 35% capital gains tax when selling a property for profit. Other countries, such as Turkey, do not charge this tax as long as the property has been in the seller’s name for at least four years.


8. Inspect the property.


Hire an accredited inspection firm to come in person and inspect the property you are considering. Do not overlook or skimp on this important step. It is imperative that the condition of the house be assessed, including its roof, fixtures, foundation, walls, and plumbing, heating, and electrical systems. Professional house inspectors will also look out for problems indigenous to that housing area, like termite, flood, or earthquake damage.


9. Do not purchase beyond your means.


While you may qualify to purchase a lot more property than you originally deemed possible, don’t. The last thing you need is to be house poor. The property you purchase will need an occasional repair or update and you cannot rely on rental income alone to keep abreast of such future developments. Keep at least 5% of your property’s purchase price in a separate account and be prepared to withdraw it should the need arise.


10. Think for the long-term.


Property purchases should always be considered as long-term investments. The exception might be if you are looking to purchase real estate in order to “flip” it for a quick profit. Otherwise, real estate is a long-term and slow to liquidate asset. If you suspect that you will need cash soon, it is best not to buy property.


In conclusion, even with the recent dip in the real estate market, you can still make a profit both here and overseas. You just need to follow certain guidelines: look for undervalued homes, know your market and the purpose of your purchase, and understand that real estate is almost always a long-term investment.


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