Lellith Garcia in Economists and Finance, Financial Analyst, Marketing Marketing Manager • eFinancialModels Apr 15, 2020 · 1 min read · +600

5 Things to Consider Before Investing in Real Estate

Real estate is one of the known investment options for investors. It is considered safer than investing in stocks but need a big capital lay-out. Real estate investment can be a good source of passive income and long-term investment. But before entering into the real estate, do some research and assess your financial condition. Depending on your need and taste for real estate investment, there are different categories that you can choose from and put your investment. These are the residential, commercial, industrial, or a mixed of the three.

5 Things to Consider Before Investing in Real Estate

Presented below are some of the things you should consider before investing in real estate:

1. Do not Over Leverage. The advantage of real estate is that you can make the property as collateral for a loan. But do not overdo it. If you have other properties, keep it free and clear to give you some back-up if the situation is on the downside. You do not want to be in trouble if you could not earn cash flow income and, eventually, cannot pay the mortgages for the properties.

2. Know Your Market. Make yourself informed and updated on the current trends, especially those that can affect your investment like the interest rates, average rent in the area, household income, and the crime rates. These pieces of information can keep you ahead of the game and help prepare yourself for any unfavorable condition.

3. Diversify Your Investment. Though it is advantageous in your part in terms of monitoring and management to have all your assets in one city, it will put you in a difficult situation if there is any market downturn in that area. As possible, try to invest in a larger geographical location since the real estate market condition will vary in different states or cities.

4. Consider All the Costs. We know that real estate needs a significant capital outlay if you want to invest in it. Evaluate your funds if you can afford it in cash, if not, consider if you can pay the mortgage without depending on the rentals and cash flows from the property. In this way, you can make sure that the investment has a high probability of bringing in wealth instead of causing you headaches.

5. Protect Yourself. As you invest in real estate, you have to protect your assets and retirement funds. You can invest using a limited liability company in which you are only liable up to the total investment. By doing so, it can create a safety net and risk management for both your assets and investment.

If you do it the right way, real estate can be a rewarding investment. You can have an addition to your portfolio and a passive income. To help in the decision-making, you can use a financial model for your financial projections and assumptions for the investment. eFinancialModels has widely available resources of business model templates that you can utilize based on specific needs. You can access the real estate business model templates here.