Regarding investments, profitability and earnings, we know, we heard, we were told or found out for ourselves that the most valuable, stable and efficient investments are in buying buildings, or what we can get from those buildings, namely real estate. And, as any investment, we all hope for the best in real estate and set up goals. However, there are certain things any potential real estate investor should know.
Real Estate investments can be a very inspired when it comes to profit, generating about 25% more than an investment in the best bank, equivalent of the same initial investment, but for this you must be wise and plan also the unexpected. So below you will find some useful tips to eliminate most of the risks as a private investor.
1. Compare property values and rents
Financial statistics in real estate are quite limited, and usually are found in extremely crowded markets; so, most often, the best assessment of a property’s market value is by comparing price to other properties in the area.
The same is true for the amount of rent. A small sale price is often justified also by a small rent; tenants who can afford to pay a high price for rent can also afford to buy. So it is necessary to keep the rent at a reasonable level. Calculating the optimal amount for buying a property is made by comparing it to the amount of rent collected over a period of 10 years from that property. If the amount received is comparable to the price you are going to pay, that is the market value.
2. Beware of excessively congested markets.
Look in local newspapers to see how many properties are advertised. Somehow ads promote extra facilities, promotions such as rent on the first or the 12th month free, or another kind of offer in order to attract tenants? It is clear that in that area there is a struggle for tenants. And if too many offers are available, you should avoid for a while this market.
3. Invest locally
Also, if you are new to the investment market, try to invest in the beginning in your local market, the one that is the nearest, in which you can get the easiest, quick and correct information, and where you can find some friends or acquaintances, (experienced real estate agents or investors) who can advise or help you. The last thing you want is to spend revenues travelling outside, in order to solve certain problems that may arise related to the properties that you own.
4. Use a real estate manager
Although now this option is not widely used in Romania, once you have purchased several properties, investing in more remote areas may be feasible if you seek the assistance of a real estate manager, or a real estate agency in that area, specializing in this thing. Of course you will need to pay a fee, usually monthly, but if you make a fair comparison between the costs necessary for travelling, your lack of experience, time lost, you will find out that, overall, it is a profitable thing.
5. Take care – Tax laws, interest and currency rate may change
As you can see, in this period we learn this lesson directly from the events that actually happen. The Tax Code increased the value on properties that are not the owner’s personal residence, those who took out loans in euros pay more because currency dropped, and everyone who bought something with credit see how interest rates have increased. Banks and the state do not want to lose, but what about us?
Do not calculate investments based on current taxes! The Tax Code will be in constant change, and a good investment is good regardless of the code. Analyze well the credit markets: there are good loans and bad loans. The difference between them is the situation you find yourself in, at a certain time, after the enthusiasm of acquiring new properties, disappeared. Clear your mind! As an investor, you have to search for the right property (if in search for property you might take a closer look here: Businesses-Properties.com .) with the right financing.
6. Specialize fast and invest in something you know well
Even if you are new at the moment and want to buy a property to make a profit, does not mean you will be successful. You just need to spend some time analyzing the business, comparing, estimating, extrapolating data, and become very good very quickly (even if only theoretically, in the first phase).
Start on a market segment you know. Whether you focus on improving properties, mortgage houses, low cost properties, very small advance purchases, condominiums and small apartment buildings, land or other property, all for sale or for rent, by being prepared you will identify the opportunities involving smaller risks.
7. You need to know the costs and risks of the investment!
You need to know very well all the financial details including here tax. What are the operating costs: commissions for agents, notary fees? What are the costs of loans? How high are the costs in periods when you do not have tenants? Taxes? How does a cash flow graph look like?
Then you need to know that any business has a degree of risk: a higher risk means also higher profit . And obviously, if the risk is higher, fewer people will be willing to invest there, and perhaps for this reason, having a creative mind, you will find a way to change the problem, resulting in a gain of more than average.