17/08/2019
5 Real Estate Investing Tips:
It’s a fact that real estate investing typically involves huge sums of money (at least from a general point of view). Why do I mention this?
Simple: To stress the importance of doing your homework before plunging in and investing your hard-earned money.
In this section, we’ve compiled some of the most popular and effective tips to increase your chances of success in real estate investing.
1. Location AND Target Market
I mentioned in this article how identifying a hungry market is so much more important than having an excellent product. In similar fashion, the core concept can be applied in identifying and zeroing in on a property to invest in.
You’ve probably heard (and agree) that when it comes to real estate, location is absolutely critical. But while this is true, there is one oft-overlooked factor that can be as crucial as location.
What is it?
Your target market.
Here’s an example. Condominium projects are segmented according to different price points.
You probably noticed that too, did you? Under the same developer, there will be condominiums that are priced lower than their other offerings.
The reason?
They want something to offer each unique market segment (low, mid, high income).
Doing so allows developers to take advantage of the increased buying power of low-to-mid income individuals and families looking for a place to own or rent.
Notice that this strategy puts emphasis on its target market and not solely on location.
Think about it: You may have the best and most luxurious condo buildings in town but if income from surrounding families and general development of the area are not a good fit, no one will be able to afford your asking price.
Instead of aiming for the high-level experience, you’ll probably have a better chance of landing rentals/buyers for your units if you built your condo with the financial capacity of low-to-mid income individuals in mind.
The same idea applies the other way around.
2. Identify growth areas
Development of land and construction of roads beyond urban hotspots can be good indicators to predict potential increase in property value.
Even news of a new mall or commercial establishment being erected on previously unoccupied property could serve as impetus that will trigger further development of its surrounding area.
Notice how maps on condominium flyers always seem to show how near their location is to key commercial establishments?
Because people want to live in areas that are convenient.
And this convenience is part of the draw that pulls them in to decide and choose to live there. Earlier I mentioned the construction of MRT Line 7 connecting QC to SJDM Bulacan.
I’m no expert but I bet that once the whole thing is up and running, the prices of property near the train network will significantly increase. People will no longer find these areas “too far away”, and increase the chances of them considering purchasing homes there.
As an investor, it’s good news for you if the area or property you’ve acquired continuously develop and improve since it can result to the appreciation of its market price.
3. An investment plan is important
Once you’ve identified growth areas or have decided on a property to invest in, you should then figure out your investment’s timeline in terms of ROI (Return on investment).
Having a plan showing estimated time frames for ROI is beneficial since it will give you an idea of the revenue that it will generate and when it will start kicking in.
You wouldn’t want to wait 10 years just to start generating profits, do you? Or simply break-even just because you didn’t price your rental unit accordingly, even possibly losing money on some occasions.
By laying out an investment plan containing all sorts of details (projected expenses and revenue), you can streamline the whole process and make calculated decisions.
To give you an idea, here’s a simple example showing the computation of a condo unit’s ROI (assuming it was paid full in cash):
Source
Note that the figures displayed were meant for illustration purposes only and may not accurately reflect current market prices.
4. Your investment should match your financial goals
What’s your overall financial target for that investment? How do you plan on earning from your real estate investment, one-time big-time or cash flow via rentals? What is your property’s estimated annual appreciation?
These questions aim to provide you with a high-level view and exit strategy for your investment.
Other questions may include:
How much should your revenue be if you have a rental unit?
Answer: Financial real estate experts suggest at least 2 percent of the total price of the property.
How will I know if I’m not pricing my property too high?
Answer: Determine its fair market value in accordance to, say, how other similar properties are priced and other related factors.
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