Things to Consider When Investing in Real Estate
Real estate investing can be a great way to earn income. Building wealth through property acquisition is especially attractive due to the relative risk and reward. Choosing wisely can significantly boost your assets. Here are some important things to examine when deciding where and how to invest.
Choosing the Right Property Type
As an investor, you can decide between residential and commercial real estate. Residential properties cover single-family homes and dwelling units of four or less. Commercial properties involve five or more units and include office, retail, industrial, multifamily, hotel and special-use buildings. Each type involves different kinds of tenants and loan terms. While residential investing is more hands-on, commercial holdings involve a wider range of opportunities and higher potential income streams. Carefully consider all your options when deciding the type of venture that is right for you.
Location, Location, Location!
The old adage “location, location, location” proves it’s worth when it comes to success. Being close to schools, certain neighborhood amenities and scenic areas are important factors when valuing residential properties. Proximity to major thoroughfares, markets, industrial areas or tax-exempt zones factor significantly for commercial asset valuations. For example, when investing in industrial real estate, it may be important to know if nearby factories are working with wastewater treatment companies to maintain favorable environmental conditions.
As an investor, pay special attention to the types of loans involved in residential and commercial real estate. Residential loans or mortgages are typically issued by banks and influenced by the borrower’s creditworthiness. A home buyer can finance property over a long period of time for smaller repayments. Commercial loans are generally deemed riskier by lenders, yielding higher interest rates and shorter repayment periods. The terms will usually be dictated by the borrowing company’s projected cash flow.
The residual returns from real estate can be significant and should be considered by anyone looking to build wealth. Before you make the leap, do your homework on the type of property and its location. Make sure your investment plans align with your goals.