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There are a variety of factors to take into account when taking that first step into real estate investment. For first-time investors, the real estate market can seem like somewhat of a closed book, and it can often feel like property investment is a hard sector to access. But if you have all the information you need, this doesn’t have to be the case. It’s important to get clued-up if you’re looking to start your property portfolio, so here are a few of the major things to consider before investing in real estate:
1. Research the market
The first thing you need to do is have a look at the current real estate landscape: Are house prices rising or falling? Which locations are doing well and which aren’t? Are interest rates up or down? Which property types are performing and which are failing? Adequate research will help you avoid making mistakes in the property choosing process.
2. Location
The next thing you have to decide is where you want the property to be located – this is as important a decision as actually choosing the property itself. With the advent of online Real Estate Crowdfunding, you are no longer restricted by where you live when investing in real estate – you can put money into a property down the road or thousands of miles away.
There are a few things you can do in terms of location choice to increase your chances of good returns. It is advisable to aim for somewhere desirable with high tourism rates, somewhere in the middle of a development push, and somewhere that has a good track record when it comes to property increasing in value.
3. Type of property
The type of property you choose to invest in can represent the difference between making good returns and suffering a loss. Broadly speaking, the first choice you’ll have to make is commercial or residential property. If opting for residential, the choice is then between established properties or new-builds – new builds are more risky and require more input, while established properties are more stable and require little in the way of upkeep.
The next choice is between rental versus to-buy properties – in general, rental properties are for investors looking for long-term gains, while the buy-to-sell approach offers the chance for higher returns in the short-term, but the strategy comes with much more added risk. Another option is to invest in a property for holiday lets, but this is again risky as holiday destinations fluctuate wildly in terms of popularity.
Then it comes down to what the property itself is like: small or large, high-end or low-end, luxury versus non-luxury. Luxury properties are always a good bet as they tend to provide more security and their exclusivity means that they are not as affected by market fluctuations as other property types.
4. Long-term versus short-term
Before investing in property you have to establish what your ultimate goal is. Do you want the chance to gain returns straight away or do you want to build them slowly over time? If you’re going for the short-term option, you will be looking at buy-to-sell and fix-and-flip opportunities; though these provide the chance for higher returns, they can also be very risky.
If, on the other hand, you’re looking for long-term gains, then investing in rental properties is a good bet, especially if you can find an opportunity to invest in a luxury rental property situated in a high-end location. Long-term investment strategies are designed to gradually amass returns over a number of years; it’s a lower-risk strategy aiming for stability and steady build-up.
5. Diversification
When investing in property you should always be prepared to diversify – it is not advisable to put all your money into one property. Spreading your money across multiple properties allows you to mitigate risk and increase the potential for returns because you will not be subject to the success or failure of just one piece of real estate – if one doesn’t work, the others will balance it out, while another might prosper elsewhere.
The growth of online investment via Real Estate Crowdfunding makes diversification a lot easier due to the fact that you can now invest much smaller amounts in a number of properties, instead of having to pay the full amount of just one.
It is interesting to note that the Yale model of investment strongly advocates diversification into real estate as part of an overall multi-faceted investment portfolio; further diversifying in real estate within an already diversified larger portfolio will provide the best possible chance of gaining good returns.
6. Direct versus non-direct investment
The internet has changed the face of investing, allowing people to move money remotely and easily send investments across the globe. If you don’t want to get involved with the complicated paperwork and upkeep of investing directly in a property, then investing online with Real Estate Crowdfunding is a hassle-free option that you might be interested in.
by Bricksave CEO, Tom de Lucy
Sources: http://www.investopedia.com/articles/investing/110614/most-important-factors-investing-real-estate.asp;
http://www.bloomberg.com/news/articles/2015-10-06/yale-endowment-model-thrives-as-swensen-proteges-post-top-gains
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