Here's what you should ask before buying a property for personal use or for business.
These twenty questions to ask before investing in real estate will surely help.
1. Do you want to buy residential or commercial property?
This is the first and most important question. What do you want to buy? Are you considering options for personal use, or do you have a business idea for which you need real estate? Both options involve many additional questions.
For example, do you want to buy a house or an apartment? In which area of the city should your commercial property be located so that it is convenient for clients? And many other questions.
2. Can you afford it?
Your desire to buy a property is understandable, but can you afford it? Novice investors (or rather those who want to become them) often ask if it is possible to start investing without money?
No, it is impossible. Investing without money is absurd. Lack of funds destroys the underlying meaning of investing as such.
Therefore, at this stage, you need to look at your budget, understand how much money you can invest right now, and whether this amount corresponds to the value of the property you want to buy. Following simple steps to buying a home will be critical so you don't make foolish mistakes.
3. Will it be your asset or liability?
This is also one of the most critical issues. If you buy real estate for personal use, that is, to live, then this will be your liability. If you purchase real estate to make a profit in any way, whether it is renting it out or opening a beauty salon, then this is already your asset. Of course, it is preferable to have an asset than a liability - or buy a liability for the money received from the asset.
4. Is your purchase emotional? Or not?
Most of the purchases we make are emotional. And the higher the value of the object that we buy, the higher the price of our error. That is why it is categorically incorrect to be guided by emotions when choosing a property. Before you say goodbye to money, make sure that you do it consciously. To do this, you need to honestly answer all the questions in this article.
5. What do you plan to do next with this real estate?
Do you have a plan? If you are going to live in this house or apartment, are you ready for renovation and meeting your neighbors? If this is a business premise, then what kind of business is it? Will you rent a room out or open your company here? If so, what will you do? What is the market situation for your services or products? Is the location of the facility convenient for people who come to you for a product or service?
6. What short-term expenses will you expect?
Short-term expenses are inevitable. In the most optimistic forecast, you will have to pay for the rental of vehicles for moving - if you use a house or apartment just to live. Plus, tax, payment for agent services, notarization of the transaction. This is a perfect picture of the world - in fact, much more short-term expenses are waiting for you. Yes, this is a repair that relates to short-term costs, but can last forever.
7. What long-term expenses will you expect?
Long-term expenses are inevitable, as well. At a minimum, this is a utility bill, plus business taxes, if it is commercial property. Very often, long-term expenses also mean paying a loan - you also need to ask this question before signing any contracts.
8. What loan terms can you apply for?
In this case, you are better off either having a financial advisor or independently studying all the loan offers available to you. An investment property loan is more than likely what you'll be looking for. The terms of the mortgage for the purchase of real estate can be very different - a lot will depend on your level of earnings, the availability of other personal property, starting capital and the currency in which the loan will be issued, for example, if you want to buy a home abroad.
Using a mortgage broker can be extremely helpful when buying an investment property as they can place you with lenders that match your goals.
9. Can real estate income cover loan payments?
At this stage, you do not need too complicated mathematical calculations yet. It is enough for you to compare your expected profit with the fixed rate of the loan agreement. If benefits cover expenses in excess, this is an ideal place to be in. Approximately equal values are also good, while your business is gaining momentum. But if you take out a loan for the purchase of personal housing, then here you need to plan your budget very carefully so as not to starve for the next few years.
10. How fast can you sell this property?
In other words, what is the liquidity of your property? There is no universal recipe - buying behavior will vary depending on the country, city, and region. We recommend that you do a little research before buying and find out which properties in your area are bought and sold the easiest and fastest.
11. What spare business ideas can you implement with this property?
What happens if your primary business idea fails? For example, you wanted to open a bakery, but after two months, you realized that it was not profitable. What else can you do with this investment? If you are buying a business premise, we recommend that you consider several business ideas that you can implement in this space to be more calm and confident.
12. Why is this property for sale?
Perhaps the previous owner is hiding something. For example, terrible neighbors live in an apartment nearby, or mice make their way into the room every spring. Ask about the reason for the sale directly - but do not forget to conduct your own due diligence investigation. Sometimes it’s useful to get to know neighbors before you sign a contract, or just read reviews about the property and the area on the Internet.
13. What are the main advantages of this property?
When answering this question, write a list of all the benefits. Is it close to major commuting routes? Are their busy restaurants nearby? Does the city or town have an outstanding school system? Are there very few renovations needed? If it is a home, are you able to make a few minor fixes and put it back on the market with a little bit of profit like an iBuyer would?
14. What are its main drawbacks?
Make another list and write down the shortcomings of the investment you want to buy. Is it a fixer-upper or total rehab? Do you have the means necessary to get this property where it needs to be from a condition perspective? Now compare these lists and prioritize them.
15. Is your choice the best and most reasonable in comparison with other properties?
In other words, make sure you analyze all the possible and affordable options. Use your list of positive and negative characteristics of real estate to find additional options that you can also analyze.
16. What is rent-to-cost?
Use the rent-to-cost formula to compare multiple properties. This indicator is the result of the monthly rate cost divided by total cost. The cheaper the property, the higher the rent to cost it will have. Experienced investors advise buying only that property whose rent-to-cost ratio exceeds one percent. Keeping your property rented will be key, whether in good times or bad.
17. What is gross rent?
Use this indicator to evaluate the profitability of a property from a one-year perspective. This figure is considered as the total value of your property divided by the annual rental income. In a good case, this figure should be about seven percent.
18. How many investors want this property as well?
In other words, how competitive is this project? Everything is simple here - the more investors are actively interested in a property investment and express serious intentions, the more this situation is attractive. However, evaluate this indicator sensibly - do not succumb to fear of missing out.
19. How will you look for reliable tenants?
If you buy property for rent, then adequate tenants who will protect your property is half the success of your idea. Think about where you will look for them right away. Perhaps it is worth cooperating with an agency, or someone from your friends already asked you about renting an apartment or a house.
20. When will your investment pay off in full?
It is straightforward to find this point in time - for this, you just need to find out the annual profit from housing and then divide the purchase price by the annual profit. As a result, you will get the number of years it will take to pay off your investment in full.
In the case of purchasing real estate for yourself, this question will sound like how many years it will take you to pay a loan - and your bank will tell you about it in the contract. Obviously, there will be some short term buying deductions, but that should never be a basis for making a purchase decision when it's an investment property.
Conclusion on investing in real estate
Real estate acquisition is always a very serious decision. Even millionaires approach this issue very carefully and thoughtfully. The most important piece of advice is to give yourself time to think calmly after you answer all these questions. By answering these vital real estate investment questions, you'll be well on your way.
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About the author: The above article on questions to ask before investing in real estate was written by Gregory Chapman. Gregory is passionate about researching new technologies in both mobile, web, and WordPress. Also, he works on Best Writers Online, the best writing services reviews. Gregory in love with stories and facts, so Gregory always tries to get the best of both worlds.