Investing in real estate most likely wont produce the get-rich-quick results promised by many a late-night infomercial. But for investors willing to do some homework, make a good purchase and properly manage a piece of property, the rewards can be substantial.
Various strategies can be used on the road to real estate wealth. In one, investors "flip" properties by buying a house, renovating it in short order and selling for a profit. In another, investors purchase the property with the intent to hold it for many years.
A common approach is to purchase an income-producing property such as a single-family home, an apartment building, an office or retail building or farmland with the intent to rent the property or units within it. By having tenants, investors benefit not only from any appreciation over time but also the rental cash flow. Theres also some inflation protection because as operating costs increase, rents can increase as well.
The downside: Investment in real property — unless youre buying shares in a real estate investment trust — isnt as liquid as putting money into the stock market. And real estate markets are often cyclical in nature.
Alternately also get ready to do some research.
Location will always impact the value of any piece of real estate. In residential properties, the health of the local economy and school district are necessary considerations. Meaningful due diligence is also required on commercial properties; leases usually span longer than a year, and research on current tenants is a must.
Deciding whether the property is affordable involves a little more homework.
Budget every cost that will be tacked on to the price, including closing costs and insurance. If the property is a fixer-upper, inspections should prove its structure is still sound; make sure to add improvement estimates into the equation, including a cushion for unforeseen extras.
There are a number of factors to consider when looking for suitable commercial real estate to purchase. The old adage "location, location, location" is true for commercial properties just as much as it is for residential. But there are other issues at play, as well. Here are some things to consider:
Location. This is still the No. 1 issue. You want to be close to your customers, your workers, and your vendors or suppliers. "You want to be convenient to customers to the extent that you have a business where the customer comes to you," Martin says. "But depending on the type of business, access to rail and highway and shipping lanes may be important, too."
Physical condition. After identifying the general location, consider how the property was used, the wear-and-tear, whether there are any environmental issues or potential liability issues, such as asbestos or lead paint.
Limitations on exterior and interior. Whether due to zoning laws or building codes or covenants, there may be limits to changes or alterations you can make to the property. A good example is a building that is in an historic area and subject to restrictions on changes that can be made to the façade.
Adequacy of access and parking. You need to make sure you can park.
Also research on previous Resale Values.