Real estate is one of the most profitable and popular investment options. However, just because it is loved by so many doesn’t necessarily mean that it is an easy thing in which to be successful. Indeed, there are several important issues that you must carefully consider before you decide to put your money in real estate. Keep reading to find out what they are.
Can You Afford It?
Many people have a warped idea of how much buying a property will cost them. They often cast their minds back to the good ol’ days where 100% plus mortgages were commonplace. Yes, that is right lenders use to give you over 100% of the properties value so you could fit your new home out with all the latest furniture and mod cons too!
However, even 95% of mortgages are like hen’s teeth in the current climate. Indeed, you will need at least 25% of the property value to put down as a deposit, and then there are other costs to consider such as legal and processing fees. That means around 30% of the total value of the property is a realistic figure, not a sum that most people can just pull out of their pockets!
Are You Eligible for a Mortgage?
Still, on the subject of money, you will also need to do your research to find out whether you will be eligible for an investment mortgage. The good thing about this type of loan is that it won’t be entirely based on your personal financial circumstance, but also on how good an investment the property you are looking to buy will be.
There are different types of mortgage available depending on your needs. Things such as the use of the property, your credit history and other eligibility factors will dictate not just whether you’re able to get a mortgage but what kind of interest rate and conditions are attached to it.
Of course, it goes without saying that it is well worth your time to shop around for the best mortgage. Happily, many providers offer rental loans for investors specifically. Something that means you have an excellent chance of securing the best interest rate and terms for your investment.
How Do You Plan to Make Money on Your Property?
Next, you will need to think about how you will generate a return on your investment via the property you have bought. There tend to be two main routes to go here – flipping and rentals.
Flipping is where you buy a property at a low price, renovate it quickly and sell it again at a higher price. The advantage of this is that you can make a great deal of money in under a year. However, you must ensure that you do get carried away with the renovation budget, and success often depends on how the market is behaving when you are looking to sell.
The other option is buying to let, and this is a more long term strategy. Returns are generated by the rental income that tenants pay each month. This is then put towards paying off the mortgage, so when it does come time to sell the investor will own a higher percentage of the property and so stands to make more of a profit.
Of course, there are other options to consider as well, and you must choose the one that best suits your situation if you want your property investments to be a success.