The falling global stock market saw many investors get badly burned, eating away a lifetime of savings, and severely impacting retirement funds. Likewise, with the downturn in the real estate markets many investors saw losses rather than wins over the past several years and are now wondering if it is too late to get back into the real estate investment game.
With the upturn in the real estate markets over the past two years there is still room for investors to make profits but one needs to be vigilant and realistic in terms of assessing the real profitability of a potential property purchase.
Here are a few tips to help you get back into profitable property investing.
The first important tip is to make certain your plan is profitable. Although it sounds simple, most investors sorely underestimate renovation costs and the prices at which a property can be turned around. Make sure you thoroughly research the real estate market you are thinking about entering. Compare the property values across the city, state and general geographic region where you are planning to invest. Clearly understand what your budget will buy and the realistic rental yield or sales price you can obtain from the property. Make sure you factor in all renovation costs, loan interest and holding costs, and then see if there is enough profit margin to consider the transaction a success investment.
Do your due diligence and do not assume anything. Do not assume a house is structurally sound. Spend the money for an inspection. Check out zoning and tax laws. Verify a fair asking price for the home, any liens, all renovation costs etc. All of these things can change so it is important to understand the current situation and future changes that could impact the profitability of the property you are considering purchasing. Consult with experts because few people understand all of the elements involved in a real estate transaction or accurate cost estimations for renovations. Don't be afraid to call in help.
Set a realistic budget for your purchase, repairs and renovations and then stick to it. Accurately accounting for all costs related to your purchase and rental or resale of the property (if you are flipping it) is absolutely critical to determining if the real estate transaction is actually profitable. Include all costs from inspection costs, purchase price, to insurance, back taxes, liens, licenses, real estate commissions, renovations, holding costs while the building is under renovation, utilities, marketing, legal fees etc. Understand your cash flow throughout the process and make sure your budget is bullet proofed. Be prepared to make tough decisions in order to stick to your budget. Remember that every dollar over your budget is one dollar less in profit. Cost overruns can make the difference between a profitable and an unprofitable purchase or investment.
Consider foreign real estate markets. Some very good deals in hot, upcoming countries can yield good profits but work with an expert realtor because many countries have unique real estate requirements. You do not want any nasty surprises.
Think about properties that can be repurposed within zoning laws. Rather than purchasing a residential property to flip, it may be possible to invest in a commercial property that can support both a business and residential living space to optimize your return on your investment.
Are opportunities out there for profitable real estate investment? Yes, but in these strained economic times it pays to proceed with caution, and a large dose of realism and due diligence.