Let’s discuss the importance of supporting your Real Estate Investment decisions with the numbers.
In a practical world, it is not possible to just go ahead and invest in real estate just because it looks decent and is located in a great location. Some numbers, financials, and statistics will be required to make sure that the investment will yield high returns in the future, and these numbers will help you in identifying the risks attached to the investment as well as the chances of profitability. One of the common calculations that real estate investors do is related to the return on investment, and it is basically a figure that states the profit one should make on such investment. Before beginning with the calculation, it is important to come up with all the required data that is necessary. Some of the figures that you might require will be the payments that will have to be made to the tenants, the costs that are related to the property such as insurance and taxes, and the total investment that you are putting into the property.
The first part of this calculation is to come up with the gain that you will make on the property on a yearly basis. This gain will definitely be an exact figure. If you do not know how to come up with this figure, just think about how you will use this property. If you are going to give it on rent, the gain will be the amount that you will receive in rent. If you just want to sell this property later on, you will have to do some calculations regarding appreciation of the value.
The expenses will be related to the real estate, and these expenses will be both direct and indirect. Some of the direct expenses related to real estate are taxes and insurance. On the other hand, you will also have to include maintenance expenses, or any other sort of expense that will have to be incurred to regulate and maintain the property.
The return that you will get is what is called return on investment. You will reach this figure by dividing the difference between gain and expenses by the cost you incurred to purchase the property. It will be represented in terms of percentage and will allow you to evaluate alternatives as well. For instance, if a bank is offering a better percentage return on deposit accounts than the ROI calculated from real estate, you will know where to invest.
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Tips to Minimize Risks in Real Estate Investments
Investing in real estate is quite a risky venture if you do not have the skills of identifying great locations and properties. As a Real Estate Lawyer, I’ve seen some powerful investors who invest in real estate and fund the investment personally. This is a very brave decision to take, but the powerful investors are relatively less prone to risks as they have a lot going on in their lives as well. On the other hand, investors who have limited funds will often face such decisions and have fears of failure.
Worst Case Scenario
The worst thing that can happen while investing in real estate is that you invest in a certain property and it fails to gain value, in case you are looking to sell it. You will eventually have to sell it at a price that is lower or similar to the one you paid, but you will eventually make a loss due to existence of costs attached to buying. Another thing that can happen is that the property might lose value over time due to massive changes in the location. Such a scenario may leave you with no money at all.
An Alternate Way To Success
In order to gain success in this investment business, the 3 F to success approach can be taken.
- Find it: The first F to success refers to the finding of capital. If you want to invest in great properties, you will require additional capital and you will face difficulties in funding it. The best way is to find some of the best real estate and make a business plan. You will also have to look for potential investors that are willing to pitch in, and they will be convinced if you come up with a creative and attractive business plan.
- Fund it: Once you arrange the capital, invest in the real estate. You can use the capital to pay out the cost of purchasing and other property related costs.
- Farm it: At this stage, you have already acquired the capital and have invested it in a great venture. This is the time to maintain the property. Make sure you use the best ways to create money from it as you will require the inflows to pay off the investment you took from third parties, unless you managed to get a deal that was related to a profit sharing ratio, which should depend totally on your strategy.
Need help with your Real Estate Investment? Lawyer Edward L. Littlejohn, Jr. is here to help.
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Significance of Location When Investing In Real Estate
If you are interested in investing in some real estate, you should never forget the fact that the most important aspect of real estate is location. People usually consider location important for several reasons. A location is considered prime and acceptable if it is accessible and can be accessed. If there are some nearby attractions to the location, then it is a bonus point as it adds to the beauty of the location. Moreover, the presence of other locations nearby such as restaurants, high schools and parks further improves the importance of location and helps in increasing the value of the real estate. Following are some of the factors that complement the location of the real estate.
What you should look for:
If you are investing in real estate that is near some schools that have really good ratings and reviews, you should feel positive about the property. People usually buy homes in places that are closer to the schools for their children, and some are even willing to pay premium for such places to cut on the transport costs. This key factor should help in improving the value of the property. Moreover, if there are some recreational activities nearby in the form of parks or lakes, they should also be an indicator of good value. Mostly, people want to buy the real estate that has the best view nearby. If there are some shopping malls located near the real estate that you are willing to invest in, you should not hesitate, as it really adds to the convenience of owning the property.
What you should avoid:
There are several factors that make a location undesirable, and these factors directly affect the attractiveness of the property. Real estate located near commercial areas or industrial areas are always considered as bad investments mainly because the owner of the property does not have any control over the external activities that take place nearby. Such locations tend to be noisy and get dirty over time, which makes the overall area look bad. Moreover, if the real estate is located near the tracks of the railroad or freeways, you should definitely avoid investing; such places are very noisy and have no resale value. While investing in real estate you should also ensure that the crime rate is very low for your own safety.
Location is considered the most significant factor that determines attractiveness of the property and its value. You must ensure that you invest in real estate that is situated in great location so that you can get a good return in future.
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