Everybody makes an investment hoping that it will bring fruitful returns one day. Investing in property I both fruitful and risky at the same time, since it is very difficult to predict market and property conditions. Even real estate pros stick to a couple of golden rules to be followed to avoid any investment pitfalls.
Here are a few things you should know before investing in real estate and allied properties.
Buying any property sound simple enough, you have money with you, you go and invest it in real estate. But there are many other factors that have to be taken into account before you go ahead with the investment. Factors like cost of owning and maintain the said property, annual taxes and charges that you might incur, overheads which will be incurred for the said property. The most important thing being, how much rent can be recovered on a monthly basis if the property was let out or giving on a long-term lease.
These factors will again depend on the type of property, whether it is residential, commercial or industrial for that matter. The location of the said property, its use and additional resources that might be needed for the said property are all major factors which should be considered even before making an offer.
Where there are handsome rewards involved, the risk also goes up. Even if you have managed to buy a property and have made all the necessary arrangements from the ground up to make it lease worthy, there are chances that you might not get a tenant immediately. When the property does not generate any revenue in the initial months or maybe in the months between when tenants change, the overhead incurred have to be paid out of pocket without the prospect of recovering them immediately. This affects the cash flow and you should have a backup plan to tackle otherwise you just might experience your first loss.
There are many legal expenses involved along with the fixed and variable expenses, which will again depend on the type of property. And who can forget the major expense which is incurred, whether you make money or not, Taxes! Taxes are a major component when it comes to any type of investing or selling or renting for that matter. They are mandatory payments which have to be made to the government. The cost of hiring tax attorneys has to be factored in as well, in fact all the costs which you may or may not incur have to be factored in to calculate and make an informed decision of whether the property is even worth the required investment.