When investing in real estate, it pays to follow certain guidelines before making, and possibly regretting, such a costly decision. The following 10 tips will help you become a more successful real estate investor:
1. Do your research.
Before you buy a house for income generation, be sure to research historical price data for that particular neighborhood and country. Try to feel out whether housing prices in that area of town are rising, falling, or holding steady. Look up the selling prices of other homes in the house's neighborhood. In this way, you will better know if this is the opportune time to buy your desired property.
2. Consider buying cheaper property.
If you buy an expensive home you will need to charge a higher rent; conversely, a cheaper home will mean more reasonable rent. Renters who pay a high monthly rent may just as easily move out and pay that money towards their own mortgage. Higher rent properties are a luxury, while cost-effective rents are a need. In other words, needs always outrank wants.
3. Add up all costs.
Don't buy a property just because it is a "steal". Consider all the costs of buying the property, including any needed repairs, utility bills, property insurance and taxes, and risk of vacancy. If possible, make a cash flow statement, or ask for a cash flow statement from the prior owners of the property (if it was used as a rental property). Collect as many documents as you can which detail the property's utility and other costs.
4. Know your market.
Analyze your property, the type of neighborhood in which it is located, and what businesses or organizations are nearby. Would this property be suited for young professionals with no families? Would this property be better suited for renovation and resell to a family? Knowing what you are buying will help you better turn a profit on your property.
5. Consider cost of entry.
Depending on the country and even the state in which you buy your property, a significant amount of your money may be spent on purchasing fees. In Germany, for example, you may pay up to an additional 20%-25% of your house purchase price in fees and other charges. Knowing how much it will cost to purchase your income property will help ensure its profitability.
6. Consider capital growth.
Assess the neighborhood located around the property that you are buying. Are big corporations being built in the vicinity? Or are houses and buildings being shut down and demolished? Do you see evidence of quaint shops and shopping malls going up nearby? All these events will play a factor in your property's future price at sale. They will also determine the demand for rental accommodation.