January 21, 2022

Before you jump in and decide investing in real estate is a smart financial decision for you, it’s important to make sure that you understand the risks and rewards.  Below we will look at some of the most important criteria someone should consider prior to making any major real estate investments.

Geographic Area

It’s important you understand where the property you’re considering investing in is located and what the obstacles are for investing in one particular area over another.  You should consider where exactly you want to be investing based on your unique circumstance. Is it best for you to invest in a city or rather in the suburb or a more rural area? Some investors prefer investing closer to cities because there is more demand for housing and it can be easier to find tenants. That said, if you’re willing to spend the necessary time looking for good renters, then perhaps for your situation the suburbs would be a better fit since they tend to have lower crime rates than more populated cities.

Understand All Costs

You should have an in-depth understanding of all of the costs associated with making a large investment in real estate before making a final decision. For instance, it’s important to understand that there are legal fees and other expenses involved with purchasing real estate.  Making sure ahead of time that your budget is prepared for those extra costs as well as any other potential startup costs will put you ahead of your less informed competition. Don’t forget to account for the taxes on your investment returns, so you know what to expect at tax time every year.  Additionally, if you’re considering a residential property, then you should make sure to not forget about maintenance costs and utilities because those can eat into your profits often times before you realize it.

Get Clear On Your Goals

Being really clear on what your short- and long-term financial goals are ahead of time will help you determine the type of property that’s right for you. For instance, if your goal is to use this investment property as a retirement home, then maybe look into purchasing a vacation rental in a gated community since these properties are often good for retirees because they generally have a lower amount of crime.  If, on the other hand, your objective is to gain revenue from renting out a property long term, that will require an entirely different approach than focusing your time on vacation properties.

Get Insurance Coverage

You need to make sure you are covered in the case of an emergency with a good home insurance policy. There are many different insurance plan options designed to fit your investment properties specific needs, so it’s a must that you know what common things could happen ahead of time and protect your investment accordingly. For instance, if you’re considering purchasing commercial real estate, the property should be covered under property insurance because commercial properties are often more valuable than residential ones which often put them at a higher risk of being the target of theft and other crimes.  On the other hand, if you’re thinking about purchasing a vacation home, you’d be wise to have an insurance policy that covers natural disasters like earthquakes or flooding.

Above are just a few examples of the types of information you should consider when you’re thinking about investing in real estate.  Make sure that you take the time before making any final decisions to understand the specific market conditions, know what kind of property type is best for you, and always remember to protect your investment with good insurance coverage.