3 Essential Questions To Ask When Investing In Real Estate
Investing in real estate can provide the keys to your financial future. Unfortunately, achieving the rewards of real estate investment is not always as simple as you may hope. There are potential issues around every corner and a number of pitfalls that you have to avoid in order to achieve success.
There are a number of ways to help ensure a successful investment, but one of the most useful is to ask the right questions. In this piece, we highlight three critical questions any first-time investor needs to ask before they commit to a purchase.
Question: How will this property pay for itself?
It is technically possible to buy a property and then do absolutely nothing with it, with it simply being an asset. However, this option isn’t really viable. With taxes and basic maintenance, your ‘investment’ will actually cost you money. Yes, you will still technically have an asset, but one that is either expensive to maintain or falls into disrepair. Naturally, neither of these is ideal.
As a result, most property investors seek revenue generation from investment properties. The most common way to generate income is renting properties out, either to long-term tenants or as a holiday let on sites like Airbnb. Whatever you choose, you need to have a fixed plan in mind for how the property will cover its running expenses. Better yet, how it will hopefully generate an additional income.
Question: Do I have the time to manage a real estate investment?
As highlighted above, real estate investment is far more “active” than it is often presumed to be. You have to be directly involved with the property. You will need to maintain indoor and outdoor spaces. You must ensure everything in the property – such as the electricity – is safe to use, and deal with building-related admin.
If renting the property out, you will also need to meet regulatory compliance. This is important, as governments can now easily use tools such as LODGINGRevs to monitor compliance. All of these activities, and the many more besides, take time. You, therefore, have to be 100% certain you have space in your schedule to meet all of the ongoing, constant needs of your new investment.
Question: Is now the right time to invest in real estate?
It is one thing to decide that real estate is the right investment choice for you personally. However, it may not be the right choice when considered on a national scale. For example, if the housing market is buoyant and prices are high, buying at that point could mean you get less for your money.
On the flip side, negative domestic economic forecasts could mean you struggle to achieve an ROI. In both of these cases and those like them, postponing the decision to buy can actually be the best choice. If you do decide to postpone, that’s not to say that you can’t invest in real estate at some point. You just need to ensure the timing is right when you do so.
When looking to invest in property, be certain you can answer the above three questions comfortably. Once you can do that, you should be able to look forward to a successful real estate investment.