Is Real Estate a Good Investment?

Is Real Estate a Good Investment?

Real estate is a good investment strategy that can potentially generate ongoing passive income and create financial independence. Real estate investment affords exponential appreciation in value and this is what makes it a good long-term investment strategy, especially in terms of building wealth.

Buying a home, or a rental property can be an expensive endeavour. It doesn’t matter what type of property you are buying, even a melaka apartment, you will need to be prepared mentally and financially. You will be faced with increasing responsibility: ongoing maintenance and repair costs, potential gaps in income between tenants, or operating costs during rental turnover.

Thus, before you begin investing in real estate, you need to know if it is the right choice for you. Here are some tips that we have prepared for you to equip you well before you delve into any real estate investments.

1.    Pay with Cash

n general, borrowing to invest is risky business and many financial experts tend to warn against it. Before purchasing any piece of investment real estate, you need to consider if you can afford to pay for it. The key factor in any investment plan is that you should be able to afford all costs of investment.

However, it should be noted that not all of us are cash-rich. If you cannot afford to pay for the investment property with cash in full and need to take out a loan to finance it, you need to be able to afford the monthly loan repayments and mortgage and still live comfortably when no rental payments are coming in.

Although it is the norm for investors to borrow to invest, and to expect the rental returns to cover the cost of borrowing, you need to be prepared for times when you have no tenants for the property as well as the operating costs associated with tenant turnovers. There is usually a high turnover for tenants and with this in mind, remember that tenant turnover is one of the biggest cash flow killers in real estate rental investment.

2.    Have a solid plan that covers all expenses

Before you start thinking about investing in and purchasing real estate, you will need to consider the hidden costs and operating expenses that are not included in the purchase price. This includes the cost of taxes, utilities, upkeep and repairs. Do not overlook these hidden costs, as they can add up to a small fortune that might derail your investment plans and goals.

A smart tip is to factor in these expenses when you price your rental property. Make sure that these hidden expenses are fully covered. Another tip is to set aside the first few months of surplus rental income to cover the cost of future repairs on the property. Also make sure that your property is insured, and plan for the cost of insurance in your rental pricing. It is a good idea to be prepared with a sinking fund to deal with additional costs and other situations as they arise. Cover all your bases to prepare yourself for any unforeseen expenses that may arise.

3.    Start small to build your investment portfolio

Although real estate investing sounds like an expensive venture at the onset, you don’t have to fork out a fortune in initial investment to be able to be a real estate investor today. This might seem impossible if you’re only looking at the end result, but by taking baby steps in your first foray into real estate investment, you can make continued and forward progress even if you have a limited amount of funds to start investing with.

Start by looking at smaller and more affordable properties. Keep in mind that it doesn’t matter the size of the rental property, as long as there is a good market and income potential for it. Once your initial investments start generating return, you can consider putting these reaped returns to use to buy larger properties with better income potential. As your property portfolio grows, it becomes easier for you to purchase and manage more properties. Starting small helps you work your way up to owning several properties, and in turn generate greater returns on your investments and build more wealth.

4.    Do your research thoroughly

It doesn’t matter if you are going to keep the property for long-term appreciation, or flip the property or quick profits, doing your own research on prospective investment properties is vital for you to make sound investment decisions.

You should have full information on the property itself. Look through the land title and deed thoroughly and check out if there are any liens or caveats on the property in order to anticipate any prospective barriers in selling the property. Extend this research to the neighbourhood and surrounding environment of your property. Consider the comparables (properties that you can use to compared with) in the same area, the general environment, as well as other external factors that could possible affect property and market values. Also find out about the public planning of the surrounding area and neighbourhood to consider how this might affect the value, whether short- or long-term, of your property.

5.    Last Words

Keep in mind that there is always a risk involved in investment. You may make money with your investments; likewise, you may lose money too. Your end returns might not reflect your initial investments. Whatever the case, keep the end goal in sight and deal with any turns in tide with a sound mind and ample preparation.