Real Estate is often regarded as a no-loss business. As land becomes pricey, so do real estate valuations. The COVID-19 pandemic, however, has wreaked havoc on the booming business.
A report by McKinsey found that real estate’s unlevered enterprise value has nosedived between 25 and 37 percent, with the hospitality sector on the northernmost side of the ladder. While the real estate industry continues to reel under the burden of COVID-induced disruptions, property valuations have become more attractive.
If taken in the right spirit, this blog can make you an expert in filtering out the best property among a host of lucrative properties and provide you with the ultimate tips you need to get the best deal that can assure peace of mind and a full wallet.
The 2020 Guide to Investing in Real Estate
Most often, you get investors with a truckload of cash they want to put on the property market with a hope to double or triple their money within a short span.
While real estate is a surefire recipe for success, sometimes it can also fetch negative returns. Hence, you must keep an eye for the following things before parting with your hard-earned dollars.
Choose the Right Place to Invest
Depending on your budget and risk appetite, there are multiple avenues for real estate investments. Here are a few:
- Real Estate Investment Trust – REITs are like mutual funds that invest in real estate properties. You may choose to invest in select sectors like healthcare or hospitality, or invest in a basket consisting of properties across all sectors. To invest in REIT, you need to have an account with a brokerage offering REITs.
- Buy and Wait – By far, this is the most popular investment medium, as most investors prefer to wait after buying a constructed house or buy a plot rather than construct a house and live in it immediately. They buy the property with the hope that the valuation will increase over time.
- Buy and Rent Out – You may buy a property at a prime location on EMI and rent it out. The difference between your EMI and the rental income, minus taxes, can be your net profit. Alternatively, you may buy a property with multiple flats.
- Buy, Renovate, and Sell – If you are lucky enough to lay your hands upon an ailing property, it’s better to invest a few bucks on its renovation and get it spruced up, and sell it at a higher price. Make sure the location justifies your purchase decision, though.
- Online Platforms – Just like Peer to Peer lending platforms, the real estate investment platforms take money from investors and put them on real estate projects. The investors get dividends in return. However, to be eligible to make money with this method you will want to learn about becoming an accredited investor, which entails showing an income of over $200,000 a year for the previous two years and a net worth of $1 million, excluding the value of your home.
- Thematic Mutual Funds – Unlike REITs, thematic mutual funds allow you to choose a few companies making it big in the world of the property business and go with them. The process of investing is the same as investing in any mutual fund. You need to visit the fund house, either online or offline, choose the fund you wish to park your money in and create an account.
Zero in on the Location
If you feel that buying a house or plot is the best way to use your funds after going through the options mentioned above, then this section is for you.
The most important thing you need to consider while buying a property is its location or the city. Before selecting a city, carefully evaluate the following factors:
- Employment opportunities in the area
- Population density of the city
- Major construction projects that are taking place in the vicinity
- Median home value
- Price to rent ratio to find out the rent of an average house in the area
- The absorption rate, which shows you how quickly a new house/flat gets sold
- Cost of the property
Generally, if you are looking at real estate solely for investment purposes, you should focus on cash flow markets. Cash flow markets are areas where property valuations are always lucrative. San Francisco is an example in hand.
You should also consider looking at properties with a large student population. For example, UK property company RWinvest cites Liverpool as a top choice for those looking at student buy-to-let investment in 2022, due to its strong reputation as a ‘student’ city. The opportunities for student property investment in the city are also often low-priced compared to residential whilst still offering excellent rental yields. Because of this, student property investments make an excellent choice for first-time investors that are just getting started with their property portfolio.
In case you wish to explore the ways to invest in a real estate in San Francisco, SF real estate agency can help you with a few tried and tested tips and tricks.
Talk to Your Lender
The US Federal Reserve has made all efforts to make the real estate industry as attractive as it can. With interest rates at multi-year lows, now is the best time to grab a pie in the sector. Talking to the lender is crucial specially while looking for luxury condos SF or SD.
While talking to the lender, explore ways to pre-approve your mortgage loan. A pre-approved loan is preferred by developers and can enable you to catch the best rates. If, however, you choose the traditional way, you may miss the best rates.
Know the Terms that Matter The real estate sector can overwhelm you with jargon you have never heard before. Brush up your knowledge with the following terms, as it can help you to act as an expert when you sit across the table.
- Agent – A government authorized expert who helps you with the transactions
- Appraisal – The value of a property, as estimated by a real estate valuer or appraiser
- Basic Sales Price or BSP – The price of a unit, minus charges for amenities like parking, gym, etc.
- Building Code – Standard specifications for construction materials and design
- Built-Up Area – The carpet area including outer walls
- Closing Cost – The cost over and above the property cost
- Deed – Legal document transferring ownership of the property from the seller(s) to the buyer(s)
- Down Payment – The amount you have to pay as upfront fees before availing a loan
- EMD – Also known as Earnest Money Deposit, it is a 1-2% advance you pay to the developer
- Equity – The current market value of the property, minus the lender’s share
- FAR – Also known as Floor Area Ratio, it is the allowable construction area on a land
- Inspection – Evaluation of a constructed property for finding out structural or fixture defects
- Owner Financing – A system in which the buyer finances the property through the seller, bypassing lenders
- Zoning – The process of allocating land for a specific purpose. For example, buildings in the manufacturing zone have to adhere to the standards laid out by the authorities.
Investing in real estate is a dream for many, but a reality for a few. Keep an eye on government regulations and real estate industry news before putting your money for high-returns.