Just like every other business venture, investing in real estate, whether a complementary income stream or a full-time job, has many risks associated. While the general trend of property is that it generally increases in value over time, real estate investing often has very limited short-term returns and requires intensive capital to begin. 

At the same time, when compared with other investment options, real estate investing is often-times much easier to plan for, is relatively easy to self-learn, and has a pretty favorable risk/reward profile. There are several key considerations that every investor needs to make when investing, and we’ve put them down below for you to reference:

1. What is the current condition of the real estate market and what is subject to change?

   Have you been tracking real estate prices in the market that you’re planning to invest in, and if so, what is the current trend of the real estate prices in that area? Are there any factors that are likely to strengthen/weaken the market in the near future? It’s very important to research how the area is expected to evolve over the period of your investment. The peaceful, residential neighborhood of today may be in an area that’s recently been zoned for mid-rise commercial developments, meaning the fabric of the region will likely change in the coming years.

2. Does the investment pay a fair cash-on-cash return?

   Intuitively, any investor’s underlying purpose behind making a real estate investment is to receive a healthy return. Investors should concentrate on buying cash flow properties that earn decent returns similar to stocks, bonds and CDs — typically around four to six percent. To figure this out, simply map out the projected monthly income that the property will bring in (typically based on market comparables) as well as the monthly expenses to associated with investing in the property, and sum up how much you’d bring in on a monthly basis over a given period of time. 

3. Who is my target tenant and what would they want?

   If you are investing in a property to be rented, later on, it’s very important to put yourself in the shoes of your target tenant. When investing, you need to ask yourself what that tenant would find attractive and actually pay more for, then apply it in your renovations and value additions. This approach works with all types of properties, as you always want to plan around the customer when approaching real estate, and any business in general. 

4. Is your personal income stable?

   While factors such as interest rates and market prices are critical components of deciding if it’s time to invest, it ultimately comes down to not only the real estate market but also your personal situation and where you are in life. Keep in mind that real estate investing requires a lot of capital to be spent upfront in down payments, legal fees, financial fees, and more expenses that are likely to come up along the way. If you’re unsure about the stability of your income stream in 12 months from now, then it might be best to wait until you get to the point where you can confidently project the stability of your own income before making your investment.

5. What is the investment method?

   Obviously, every investor’s overarching purpose is to maximize profits, but there are various methods of achieving that. The most common methods are:

1. 1. Mid to Long Term // Purchase and Establish Rent Properties:

      1. This method typically results in a regular, predictable income stream from tenants and long-term property value appreciation. To invest in rental properties means that you will likely have to assume the role of being a landlord. As a landlord, you will have to handle disputes with tenants, legal issues, rental collections, property repairs, and more. 

   2. Short Term // Purchase, Improve, and Sell:

      1. This strategy is much quicker and typically will bring the investor small bursts of profit, as the buyer will typically purchase a property that is in need of improvement or for some reason is sold under market value, and then resold shortly after. This strategy can be extremely lucrative, especially if construction and improving properties are your strength. 

Real estate investment can definitely turn out to be very rewarding, and every successful investor will take the time to thoroughly review the investment opportunity before jumping into it. Be wary of potential pitfalls, always have a plan B, and make sure to do your due diligence.