Your Money
Ready to Invest in Real Estate?
June 2019
By Johnny Collins
Real estate is generally a good investment opportunity that can generate passive income. However, timing and the location are key factors in the decision-making process.
Keep the following in mind as you pursue this investment opportunity.
Decide on your Long-Term Plan
Determine what it is that you’re going to do with a property to make it profitable. An article in Entrepreneur states that the most common option is to turn it into a residential rental unit. What’s great about this investment strategy is that the income collected from your tenants can be put toward mortgage payments if you took out a loan to pay for the property.
Home-flipping can also be lucrative. Although, this option is only recommended if you’re an experienced buyer – there are a lot of moving parts. An evaluation of the property’s post-renovation value* must be compared to the initial purchase price plus the cost of materials and labor accrued during the renovation process.
Another option is to put a property up for short-term rentals through platforms such as Airbnb. This works especially well in locations that attract high numbers of tourists. The Balance emphasizes that vacancy risk is something that you, as a proprietor, need to prepare for. If you can’t find a renter for a significant amount of time, you will need to shoulder the mortgage and monthly bills.
Evaluate the Market
You might see an affordable foreclosure that you think would be perfect as a rental. However, price shouldn’t be the biggest determining factor in investing in real estate.
You must look at the local demographics, as well as the local economy and government policies. Ask local officials if there are future plans for the neighborhood which might affect the value of your investment.
New York City is home to some of the most valuable real estate in the U.S. The NYC Department of Building's Active Major Construction released an online tool that everyone can use, and it shows that there are currently more than 7,000 active permits for ongoing construction projects in New York City. Over 130,500 spaces are classified as 'dwelling units,' which means they are for residential use. And, according to Yoreevo, these may either be additional spaces in an existing structure or units in an entirely new building. Construction projects can affect the housing market, so check for similar changes in the city you’re buying a property in to see if these changes will impact your purchase.
US News and World Report warns that rising interest rates can result in higher monthly payments which, in turn, affects the demand for new housing. Research is imperative to get an accurate picture of the market and to make an informed decision.
Evaluate the Property
If you’re confident with the current market, the next step is to find a property to invest in. It’s best to pick one that’s close to transportation systems, schools, shops and leisure spots, especially in urban areas.
Some properties boast great deals but are “fixer-uppers,” so you must decide whether you’ll have the resources, time and energy for upgrades.
Talk to the neighbors about what it’s like to live in the area or the building. Experience the environment for yourself by visiting during different times of the day, attending events or dining in the local eateries.
Assemble a Team of Experts
Start with a reliable broker. Ask friends or colleagues for names of those with trustworthy reputations or peruse the internet for reviews so you can find a good match. A broker will be experienced in buying and selling real estate, including tasks such as determining market values, advertising properties, and guiding you through the entire process. Do your homework. It’s important to garner facts from as many sources as possible.
Other experts you need to consider hiring: a lawyer, a mortgage broker, an accountant.
A May 2018 article in Sanctuary points out that investments involve some degree of risk, and real estate is no exception. However, you can minimize these risks by following a smart plan. When it comes to investments, it’s always best to remain objective.
*Editor’s Note: Some types of renovations boost a home’s value better than others (e.g. kitchens and bathrooms).
Keep the following in mind as you pursue this investment opportunity.
Decide on your Long-Term Plan
Determine what it is that you’re going to do with a property to make it profitable. An article in Entrepreneur states that the most common option is to turn it into a residential rental unit. What’s great about this investment strategy is that the income collected from your tenants can be put toward mortgage payments if you took out a loan to pay for the property.
Home-flipping can also be lucrative. Although, this option is only recommended if you’re an experienced buyer – there are a lot of moving parts. An evaluation of the property’s post-renovation value* must be compared to the initial purchase price plus the cost of materials and labor accrued during the renovation process.
Another option is to put a property up for short-term rentals through platforms such as Airbnb. This works especially well in locations that attract high numbers of tourists. The Balance emphasizes that vacancy risk is something that you, as a proprietor, need to prepare for. If you can’t find a renter for a significant amount of time, you will need to shoulder the mortgage and monthly bills.
Evaluate the Market
You might see an affordable foreclosure that you think would be perfect as a rental. However, price shouldn’t be the biggest determining factor in investing in real estate.
You must look at the local demographics, as well as the local economy and government policies. Ask local officials if there are future plans for the neighborhood which might affect the value of your investment.
New York City is home to some of the most valuable real estate in the U.S. The NYC Department of Building's Active Major Construction released an online tool that everyone can use, and it shows that there are currently more than 7,000 active permits for ongoing construction projects in New York City. Over 130,500 spaces are classified as 'dwelling units,' which means they are for residential use. And, according to Yoreevo, these may either be additional spaces in an existing structure or units in an entirely new building. Construction projects can affect the housing market, so check for similar changes in the city you’re buying a property in to see if these changes will impact your purchase.
US News and World Report warns that rising interest rates can result in higher monthly payments which, in turn, affects the demand for new housing. Research is imperative to get an accurate picture of the market and to make an informed decision.
Evaluate the Property
If you’re confident with the current market, the next step is to find a property to invest in. It’s best to pick one that’s close to transportation systems, schools, shops and leisure spots, especially in urban areas.
Some properties boast great deals but are “fixer-uppers,” so you must decide whether you’ll have the resources, time and energy for upgrades.
Talk to the neighbors about what it’s like to live in the area or the building. Experience the environment for yourself by visiting during different times of the day, attending events or dining in the local eateries.
Assemble a Team of Experts
Start with a reliable broker. Ask friends or colleagues for names of those with trustworthy reputations or peruse the internet for reviews so you can find a good match. A broker will be experienced in buying and selling real estate, including tasks such as determining market values, advertising properties, and guiding you through the entire process. Do your homework. It’s important to garner facts from as many sources as possible.
Other experts you need to consider hiring: a lawyer, a mortgage broker, an accountant.
A May 2018 article in Sanctuary points out that investments involve some degree of risk, and real estate is no exception. However, you can minimize these risks by following a smart plan. When it comes to investments, it’s always best to remain objective.
*Editor’s Note: Some types of renovations boost a home’s value better than others (e.g. kitchens and bathrooms).
Johnny Collins worked for investment companies before deciding to leave the corporate space and become a freelancer. He now takes on financial/investment analysis projects as well as writing opportunities that cover economy, business and tech.
