Investment in real estate is one of the most stable and secured ways of earning money in both the short and long term. Most people choose property investment in Perth owing to its nonvolatile nature and impeccable opportunities for growth. However, it is often intricate to find the right property that promises good returns on your investment. Following are some factors that you should keep in mind before putting in your hard-earned money.
- Location
Location continues to be the king of all factors that influence the value and growth of a property. Properties with good neighborhood status and proximity to amenities such as open parks, scenic views, etc., are more likely to attract high returns. You should choose one that is close to transport, freeways, hospitals, schools, and marketplaces. Some areas also come under tax exemption and are valued higher than others.
- Valuation
Valuation is one of the most crucial aspects of investment assessment. It is also imperative while you are purchasing, listing your property, getting insurance, or computing taxes. Commonly three methods are used for valuation in real estate.
- Sales comparison approach: It is suitable for both old and new properties and compares recent sales of similar properties.
- Cost approach: Suitable for new construction, it is the cost of land and construction, minus depreciation.
- Income approach: Suitable for rental properties, it assesses the cash inflow you earn from it.
- Purpose and horizon of investment
Real estate is a sector that calls for high-value investments and offers much lesser liquidity than other investment options. For that reason, a lack of clarity on the purpose of investment can lead to financial distress and other unexpected and unpleasant results. You need to think about whether you want to buy the property for self-use, leasing, or selling. If you think of selling it, whether it will be in short term or long term.
- Expected inflow and opportunities for profit
Cash inflow or the profit is evaluated by assessing the money you are left with after deducting the expenses. A positive cash inflow is imperative for a good rate of returns. The computation or projection would include inflow from rent, long-term appreciation, depreciation benefits on taxes, and cost-benefit analysis of renovation.
- Carefully evaluate leverages
Leverages or loans often make property acquisition much easier. However, these can cost you big in the long run. You get a property today and commit your income for tomorrow to pay the interest dispersed over several years. In such cases, these loans can easily turn into overleverages or in simple terms, high-level debts.
Liquidity shortage and adverse market conditions can even challenge the expert realtors when it comes to handling over leverages. Sometimes such high valued obligations force real estate incumbents to break their projects.
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For that reason, it is imperative to understand the nature of the leverage and how you are going to handle it over time. You should ponder on the following pointers and weigh your present and future income before signing that dotted line.
- Study different types of mortgages such as fixed rate, adjustable rate, zero down payment, etc, and find the best fit.
- Read the documentation meticulously and understand the terms and conditions and hidden charges.
- Inquire with multiple lenders to find the best terms and lowest interest rates.
- Existing property v/s new construction
While you can get modern amenities, compelling pricing, and customization, you should be prepared for delays, over-budgeting, and unknown surroundings. On the flip side, old properties have established improvements, quick access, and great convenience. You need to comprehend several factors such as past project reviews, company reviews, monthly maintenance, rent control and stabilization, taxes, and a lot more.
- Indirect investments
Oftentimes, people are not in on watching a property they have invested in for a long time. For those people, there are some other indirect ways to invest in the real estate section. You can put your money in real estate company stocks, real estate investment trusts, sector-focused (on real estate) mutual funds and ETFs, securities, and mortgage bonds.
- Your credit score
Your credit score is a measure of your qualification for a mortgage. Merely the eligibility for a mortgage is not enough if you are looking for a lucrative deal. You should try and improve your credit score so that you can get a mortgage in better terms that eventually lead to higher savings. A score of 800 is excellent according to the industry experts. You should pay your bills timely, clear your debts, limit your credit usage to 30%, and avoid making several credit inquiries to boost your score.
- Overall market position
For any type of investment, buy low and sell high is the rule of thumb, and real estate investments are no different. Although these are more stable than most other forms of investments, you should still stay abreast with the market trends. Keeping an eye on the fluctuation in the mortgage rate can help you keep your financial cost in check.
