The Most Important Factors for Real Estate Investing

April 2024

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What's the most important thing to look for in real estate? While location is always a key consideration, there are numerous other factors that help determine if an investment is right for you. Here's a look at some of the most important things to consider if you plan to invest in the real estate market.

1. Property Location

The adage "location, location, location" is still king and continues to be the most important factor for profitability in real estate investing. Proximity to amenities, green space, scenic views, and the neighborhood's status factor prominently into residential property valuations. Closeness to markets, warehouses, transport hubs, freeways, and tax-exempt areas play an important role in commercial property valuations.

2. Valuation of the Property

Property valuation is important for financing during the purchase, listing price, investment analysis, insurance, and taxation—they all depend on real estate valuation.

3. Investment Purpose and Investment Horizon

Given the low liquidity and high-value investment in real estate, a lack of clarity on purpose may lead to unexpected results, including financial distress—especially if the investment is mortgaged.

4. Expected Cash Flows and Profit Opportunities

Cash flow refers to how much money is left after expenses. Positive cash flow is key to a good rate of return on an investment property.

5. Be Careful with Leverage

Loans are convenient, but they may come at a big cost. You commit your future income to get utility today at the cost of interest spread across many years. Be sure you understand how to handle loans of this nature and avoid high levels of debt or what they call over-leverage. Even experts in real estate are challenged by over-leverage in times of adverse market conditions and the liquidity shortages with high debt obligations can break real estate projects.

6. Your Credit Score

Your credit score affects your ability to qualify for a mortgage, and it impacts the terms your lender offers. If you have a higher credit score, you may get better terms—which can add up to substantial savings over time. Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take.1 One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).

7. Overall Real Estate Market

As with other types of investments, it's good to buy low and sell high. Real estate markets fluctuate, and it pays to be aware of trends. It's also important to pay attention to mortgage rates so you can lower your financing costs, if possible.

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Source: investopedia.com

Also Read: What Are the 8 Effective Tips to Buy a House in India?

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