Table of contents
Table of contents
Investing in real estate is more than just about location. While location does play a part in knowing if an investment is worth it or not, there are other important factors you can consider, lowering the risk you take on. This article will go over the different factors you need to consider before investing in the real estate market.
Main Takeaways
- Location plays a big part when it comes to investing in real estate.
- They’re different factors to consider depending on the investment you want to do, flipping or renting.
- Flipping is a quick way to get a return on your money. Rental Properties is great for cash flowing each month.
- Real estate investors can accelerate their portfolio holdings by using leverage. Too much leverage can destroy your portfolio, be careful.
Property Location
Why it’s a factor:
The age-old saying “location, location, location” is still the most important factor to consider, regardless of the type of investment you want to do, flipping (short-term) or renting (long-term). The closer you are to amenities, scenic views, and low crime rate-driven neighborhoods, the more potential buyers you will drive in.
What to consider:
If you are looking to purchase a single-family house (your typical residential property) as an investment property, ask yourself the question, would you like to live there? If the land around the home is already developed, you don’t have to worry about too much. Review the neighboring houses, see what amenities surround them, and check the crime rate. If you’re looking to purchase a home in a place that isn’t developed, check to see what the future holds for the surrounding land. For example, it may be a peaceful plot of land today but could turn into a noisy manufacturing warehouse the next day.
Expected cash flow & profit
Why it’s a factor:
Depending on the types of investment you want to take on, flipping or renting, the last thing you want to do is take on this venture, spend a lot of money and have it return you a negative profit.
What to consider:
If you are looking to become a landlord, make sure to run a rent comp analysis, and see if the potential rental income can out-pay your mortgage while also putting money to the side to cover any maintenance cost. We recommend opening a separate bank account and having all the money coming in from your rentals going to the said bank account. This strategy helps you from overspending the money you generate from your rental. If you’re looking to make your rentals completely hands free, consider hiring a property manager. Pro tip: The more you put down on the house, the more you will cash flow. Don’t just put down the minimum 5%; Aim for 20-30%.
If you’re looking to flip a house, check if your cost of materials and labor doesn’t outweigh the amount you receive from selling the house. For example, you purchase a home for $80,000 and find out the neighboring homes sell for $100,000, so you buy the house expecting to profit $20,000. As you start the project, you do the calculations to determine the materials cost $12,000, labor costing $8,000, and title fees $4,000 adding up to $24,000. You now lost $4,000 and all the time it took to acquire the home and to fix it up.
Value of the property
Why it’s a factor:
Whether you’re looking to flip or rent the property out, you want to make sure you aren’t overpaying for a house. Property value becomes more prevalent if you’re looking to flip a home.
What to consider:
Ensure to run a CMA (Comparative Market Analysis) and pay a fair price for the home. Some states require to have the house appraised, which will help you from overpaying for a house. If you’re flipping a house, you want to make sure you aren’t paying for the home at value. You want to pay a “special” price for the home to maximize your profit when you go out to sell it.
Careful with using leverage
Why it’s a factor:
Loans are handy and will always be available for you to use, but they come with risks. You’re essentially hoping for future revenue while using borrowed money from other investors. Ensure you understand how to manage the number of loans you got to avoid over-leverage (high debt levels). Even real estate professionals have difficulties with excessive leverage in poor market conditions.
What to consider:
Each loan has their own set of rules, such as interest rates, down payment needed, and living requirements. Shop around for different loans and keep up to date on the state of the real estate market. Whether you’re looking to flip or rent, your properties will not sell if no one is looking to buy homes.
Conclusion
The entry to real estate investing can be high, especially if you don’t have the capital, making it intimidating. If you’re starting out, make sure to have these four factors in mind. Also, don’t be afraid to hire a real estate agent for your first couple of deals as well. Shop around different agents around the city and find the one that specializes in real estate investments. (Don’t use multiple agents at once, they’re strict ethical policies that Realtors must follow), and if you’re shopping in the state of Oklahoma, feel free to reach out to us, and we will be more than happy to help you out.