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What To Consider Before Investing In Residential Real Estate
May 3, 2023
Image: Adobe Stock
Real estate investments are a sure-fire way of diversifying your portfolios. Residential real estate, in particular, is among the most lucrative ways to maximize your investment returns. It produces long-term cash flow and can be considered a constant source of revenue.
But like most forms of investment, it has intricacies that can easily put reckless investors in a loop. Understanding all the ins and outs before entering the field is best as you’re sure to navigate all these uncertainties.
There’s no such thing as risk-free when it comes to business. But this should guarantee you avoid making significant mistakes that could lead to vast losses.
Taking vital considerations before investing in home real estate is the best first step. Here are the biggest ones to think about:
1. Consult Professionals
You should enlist the help of professionals to properly manage residential properties. This usually consists of property managers, caretakers, janitors, electricians, plumbers, and cleaning services. Such professionals work towards helping you realize your goals in keeping tenants satisfied and securing income.
According to Steven Christodoulou, professionals like property managers are significant investments for real estate investors who want to get the best value. That’s why you have to be thorough when hiring one. Look for qualities that are in line with your principles so you can find people who can serve as assets to your business.
2. Consider Location
With residential places, an appropriate location is a vital factor. A property close to critical areas like schools, hospitals, and markets is preferred by a large majority of clients. You need to consider this when setting up a unit for selling or renting.
Most tenants are regular workers, as well. They will opt to live near city centers to get as close as possible to their workplaces. Such areas should be easily accessible by public and personal transport.
For families, schools and hospitals are of significance. Ensure such amenities are within the place where you plan to build your properties. This way, you can get regular exposure to interested clients.
3. Evaluate The Cost Of Investment
With every investment, finances are vital. This is especially the case with real estate, which is highly capital-intensive.
If you don’t have the finances to invest in properties at the moment, you can raise money through crowdfunding, peer-to-peer lending, and bank loans. Also, you should consult contractors or real estate agents to get a rough estimate of the property’s value to make an informed purchase decision.
Working with a budget is vital. Hiring realtors who help you make informed decisions on properties is crucial for this reason.
Furthermore, when investing in real estate, you should consider other factors, such as renovations and repairs. Note that lower-priced properties will likely accrue more costs on this. So, check your budget and see where it can fit into your long-term plans.
The property’s age is also an essential factor when purchasing. Older properties tend to require more renovations, increasing their overall cost. It would help if you weighed your choices before settling on a unit to invest in.
4. Research Market Trends
Image: Adobe Stock/Harry Hu
You need to research market trends in residential real estate properties.
In the first place, you must ensure you make timely decisions on your investment. Buying residential properties at the opportune time can help you access better rates that carry through when you flip or rent a unit.
Structural designs are another critical trend to watch out for. It refers to the kind of units that most tenants prefer. For example, modernist styles that focus on minimalism are fairly common. But a considerable number of people, especially the youth, are showing interest in cottage-style, 'organic' options.
Regardless of your properties' style, you should be willing to revamp them to accommodate changing tastes. They're a significant selling point when it comes to home real estate.
5. Familiarize Yourself With The Laws And Regulations
State laws govern investment in real estate. For instance, you must pay land rates, stamp duty, and income taxes as the property owner. You risk facing severe consequences if you don’t keep up with them.
Some jurisdictions offer tax advantages and benefits to property owners. The ones applying to Canadian real estate investors include:
- Reinvest and refinance benefits: You can maximize the leverage on your existing property and earn an increase in equity.
- Capital cost allowance: Residential properties contain depreciable furniture or equipment. These can be deducted from your yearly gains.
- Capital gains exemptions: You can gain long-term investment benefits from principal residences.
These benefits are a relief to investors, ensuring you enjoy as much of your profits as possible.
Check your province's legal requirements to ensure you stay in line with responsibilities while getting the most out of the benefits.
Watch: AI's Impact on Real Estate, Mortgages and Renters: Enhancing Sustainability and Purpose
Know How Prepared You Really Are
Investing in residential real estate is a great choice, but only if you've considered the factors above. You can talk to experts to get more actionable advice. Take time to weigh your decision before you start investing in the housing market.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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