When looking to acquire real estate there are a number of factors which you need to take into consideration, some of which are obvious and others perhaps not so obvious. We will now take a look at some of the simple areas in which you need to have knowledge and perhaps more importantly a target/exit route. While each and every investment is different this simple checklist will make you think about what you are doing and whether it is indeed the right thing for you.
Research the area
Sometimes it is easy to be carried along with the momentum of a particular real estate market which may look fairly obvious on the surface but what do you really know about the area? Whatever type of property you are looking to invest into it is vital that you research the local area to see what is happening, the recent trends and whether indeed it is an area in which you should be investing. Even the most attractive new property builds could have a relatively low price ceiling if the area is not in demand.
Do not, we repeat, do not get carried along by the media headlines regarding a specific area and real estate investment. Do your own research!
Quote from Propertyforum.com: “So you think you can make money in real estate?“
Will this investment stretch your finances?
Even the most attractive of long-term investments could quite easily underperform in the short-term or perhaps cost you a little more than you expected in the medium-term. This is all part of the real estate investment arena and it is vital that you do not overstretch your finances to leave yourself potentially open to financial problems in the future. The simple fact is that if you have financial problems in the future then you may be forced to sell a property at a loss or at a significant discount to its “real value” if you needed an immediate cash injection.
If you give yourself a buffer between what you have spent and your foreseeable expenses against your investment pot then you will not be forced to fire sale properties due to financial constraints. Even if you were to work in the worst-case scenario and build your investment criteria around this you would ensure that you are financially sound going forward.
What is your exit route?
If you are looking to invest in real estate for the longer term, to buy and sell investments to make money, then every time you invest in a property you will need to have an exit route in mind. This may not be a short term exit route, it could be a long-term investment with rental income, but whatever the situation you do need to have an idea in mind. As Lord Rothschild once said “The reason I’m so rich is because I always sold too early”. You will hear much advice about real estate investment, about investment in general, but these wise words from Lord Rothschild should ring loudly in your ears.
At the end of the day a profit is a profit, even if we all want to maximise our profits as much as possible, there will come a point when the risk reward ratio is in favour of selling and cashing in your chips. You may not hit the top of the market but if you hit this risk reward changeover area then any return over and above this should be seen as a bonus, although a bonus which could come at a risk.