With its profitability and relative stability, real estate makes an attractive investment. There are many principles that a prospective investor should follow in order to protect their money and get the most out of their investment. David Ebrahimzadeh of Corniche Capital explains the basics of real estate investment and management, touching on many different areas that may come into consideration.
Understanding the Property Market
For real estate investments, it is helpful to know a little about the market as a whole and how it works. The main factors affecting the real estate market are interest rates, economic growth, affordability of properties, speculative demand, and the overall supply of properties available.
Demand for properties is dependent upon the income of a business or household. When economic growth is strong, demand is up and prices are up as well. When economies are in a recession, it is difficult to sell property, but there may be significant advantages to buying low and selling high.
Interest rates are another key to understanding the market. The government raises and lowers interest rates in accordance with economic conditions. If credit is inexpensive, more investors will enter the market, but if rates are high, it will have the effect of depressing sales.
The Process of Real Estate Investment
Before deciding on a property, an investor should carefully look at their own financial stability and their ability to pay. If they would have a difficult time getting a loan at a favorable interest rate or if their credit score is low, it may not be a good time to buy. It is also a valuable practice to diversify investments and to have funds in other areas than real estate. Not all investments will be up or down at the same time, and it is possible to keep a steady income in this fashion.
Choosing a Property
Location is widely known as one of the most important factors in choosing a property. For a residential or a commercial property, the criteria for location are different. In the case of a residential property, easy access to amenities like schools and shops is important. An attractive, high-status neighborhood is another plus. The neighborhood should be studied carefully before buying the real estate investment property.
For commercial property, proximity to the highway, or other transportation types is important. The availability of land for expansion is another factor that should be considered. The quality of the building is key, as is the reliability of the tenants if the building is already occupied.
Some prospective commercial property owners neglect to check whether their facilities are located in a government opportunity zone or tax abatement zone. These programs can be instrumental in saving money and attracting jobs to the area.
Another area that investors should look into is the valuation of the property. Many factors are dependent upon valuation, like taxation and the availability of financing.
Sometimes properties are incorrectly evaluated, and a smart investor knows whether it should be higher or lower. Having an overly high valuation means that taxes and insurance will be higher as well.
Profitability
Before buying a property, a prospective investor needs to know whether it will be profitable to own. Without taking the time to research the property and the surrounding area, it might be difficult to make this call. Investment always involves some risk, but a smart property owner knows how to minimize the risk by knowing everything they possibly can about their land or building.
Tax Considerations
Another crucial consideration when buying a property is the tax situation. Property owners need to make sure that they are paying the right amount and that the previous owners were also up-to-date on their taxes. This can lead to significant legal problems and fees otherwise.
Professional Help
It is necessary to have good quality professional help when investing in real estate. Property owners need to work with a reputable broker. They should also have a real estate lawyer who specializes in contracts and other considerations.
Securing Financing
Property owners will often need to finance their purchases. They should consider shopping around for the best rates and even bargaining when they feel that they have a chance to improve their situation.
Managing a Property
Once the property has been bought, it is the owner’s decision how to use it. Leasing the property or renting it out can be a way to get useful passive income. However, the problems of managing a building can be difficult. Many property owners choose to hire a management service to do it for them.
If a property owner takes on the responsibilities of a landlord, they will need to be able to keep the building maintained, moderate disputes, and make sure that the tenants pay their rent on time. They will need to comply with the various laws that apply to renting property, especially if it is a residential rental.
It is crucial to keep the property well-maintained as time goes by. A neglected property could become a blighted eyesore and could bring down its value along with the value of surrounding buildings. The building should be fitted out with modern conveniences, especially in the case of an office building. Quality office space also depends on the accessibility of the building and its proximity to roads and commercial areas.
When property owners manage their buildings correctly, they will be able to protect their real estate investment and help its value grow over time so that the selling price will be higher than the price at which it was bought.
Understanding Real Estate Investment
David Ebrahimzadeh recognizes the need for education for investors. These principles can help inexperienced property buyers find a profitable investment and manage it in a way that leads to better returns down the road. When property owners understand what they are getting into, they will be much more likely to succeed. Whether an owner is investing in a residential home or in a large commercial building, the basics are the same.
