6 Things to Know Before Investing in Real Estate (2024)

News > Blog Article > 6 Things to Know Before Investing …

There are a variety of factors to take into account when taking that first step into real estate investment. For first-time investors, the real estate market can seem like somewhat of a closed book, and it can often feel like property investment is a hard sector to access. But if you have all the information you need, this doesn’t have to be the case. It’s important to get clued-up if you’re looking to start your property portfolio, so here are a few of the major things to consider before investing in real estate:

1. Research the market

The first thing you need to do is have a look at the current real estate landscape: Are house prices rising or falling? Which locations are doing well and which aren’t? Are interest rates up or down? Which property types are performing and which are failing? Adequate research will help you avoid making mistakes in the property choosing process.

2. Location

The next thing you have to decide is where you want the property to be located – this is as important a decision as actually choosing the property itself. With the advent of online Real Estate Crowdfunding, you are no longer restricted by where you live when investing in real estate – you can put money into a property down the road or thousands of miles away.

There are a few things you can do in terms of location choice to increase your chances of good returns. It is advisable to aim for somewhere desirable with high tourism rates, somewhere in the middle of a development push, and somewhere that has a good track record when it comes to property increasing in value.

3. Type of property

The type of property you choose to invest in can represent the difference between making good returns and suffering a loss. Broadly speaking, the first choice you’ll have to make is commercial or residential property. If opting for residential, the choice is then between established properties or new-builds – new builds are more risky and require more input, while established properties are more stable and require little in the way of upkeep.

The next choice is between rental versus to-buy properties – in general, rental properties are for investors looking for long-term gains, while the buy-to-sell approach offers the chance for higher returns in the short-term, but the strategy comes with much more added risk. Another option is to invest in a property for holiday lets, but this is again risky as holiday destinations fluctuate wildly in terms of popularity.

Then it comes down to what the property itself is like: small or large, high-end or low-end, luxury versus non-luxury. Luxury properties are always a good bet as they tend to provide more security and their exclusivity means that they are not as affected by market fluctuations as other property types.

4. Long-term versus short-term

Before investing in property you have to establish what your ultimate goal is. Do you want the chance to gain returns straight away or do you want to build them slowly over time? If you’re going for the short-term option, you will be looking at buy-to-sell and fix-and-flip opportunities; though these provide the chance for higher returns, they can also be very risky.

If, on the other hand, you’re looking for long-term gains, then investing in rental properties is a good bet, especially if you can find an opportunity to invest in a luxury rental property situated in a high-end location. Long-term investment strategies are designed to gradually amass returns over a number of years; it’s a lower-risk strategy aiming for stability and steady build-up.

5. Diversification

When investing in property you should always be prepared to diversify – it is not advisable to put all your money into one property. Spreading your money across multiple properties allows you to mitigate risk and increase the potential for returns because you will not be subject to the success or failure of just one piece of real estate – if one doesn’t work, the others will balance it out, while another might prosper elsewhere.

The growth of online investment via Real Estate Crowdfunding makes diversification a lot easier due to the fact that you can now invest much smaller amounts in a number of properties, instead of having to pay the full amount of just one.

It is interesting to note that the Yale model of investment strongly advocates diversification into real estate as part of an overall multi-faceted investment portfolio; further diversifying in real estate within an already diversified larger portfolio will provide the best possible chance of gaining good returns.

6. Direct versus non-direct investment

The internet has changed the face of investing, allowing people to move money remotely and easily send investments across the globe. If you don’t want to get involved with the complicated paperwork and upkeep of investing directly in a property, then investing online with Real Estate Crowdfunding is a hassle-free option that you might be interested in.

by Bricksave CEO, Tom de Lucy

Sources: http://www.investopedia.com/articles/investing/110614/most-important-factors-investing-real-estate.asp;


6 Things to Know Before Investing in Real Estate (2024)


What is the 5 rule in real estate investing? ›

The first part of the 5% rule is Property Taxes, which are generally around 1% of the home's value. The second part of the 5% rule is Maintenance Costs, which are also around 1% of the home's value. Finally, the last part of the 5% rule is the Cost of Capital, which is assumed to be around 3% of the home's value.

What is the 10 rule in real estate investing? ›

The 10% rule is a quick and straightforward way for investors to evaluate the potential profitability of a real estate investment. It involves calculating the expected annual income from the property and ensuring it equals at least 10% of the property's purchase price.

What are the 4 pillars of real estate investing? ›

These pillars work together as puzzle pieces, to create one big well-oiled machine that can generate profit. The 4 pillars of real estate include: cash flow, appreciation, amortization and leverage, and tax benefits.

What is the 5 rule of investing? ›

This sort of five percent rule is a yardstick to help investors with diversification and risk management. Using this strategy, no more than 1/20th of an investor's portfolio would be tied to any single security. This protects against material losses should that single company perform poorly or become insolvent.

What is the 80% rule in real estate? ›

When it comes to insuring your home, the 80% rule is an important guideline to keep in mind. This rule suggests you should insure your home for at least 80% of its total replacement cost to avoid penalties for being underinsured.

What is the 50% rule in real estate? ›

The 50% rule advises investors to estimate a property's operating expenses will amount to roughly half of its gross income. While this estimation proves helpful in projecting rental property cash flow, it is not a flawless measurement and should only ever be used as a starting point for further research and analysis.

What is the golden rule in real estate? ›

Corcoran's Golden Rule of real estate investing consists of two main parts. The first is being able to purchase property with at least 20% down, ideally in a location that has started seeing an increase in demand. The second is to have tenants living on that property paying the mortgage.

What is the 4 3 2 1 rule in real estate? ›

Analyzing the 4-3-2-1 Rule in Real Estate

This rule outlines the ideal financial outcomes for a rental property. It suggests that for every rental property, investors should aim for a minimum of 4 properties to achieve financial stability, 3 of those properties should be debt-free, generating consistent income.

What is the 1% rule in real estate? ›

The 1% rule of real estate investing measures the price of an investment property against the gross income it can generate. For a potential investment to pass the 1% rule, its monthly rent must equal at least 1% of the purchase price.

What are the core four in real estate? ›

The “Core Four” in real estate are generally viewed as office, industrial, retail, and multifamily. Each real estate property type (or 'asset class') can be further divided into subcategories. For example, there are at least five sub-types of retail investment properties.

What are the three most important factors in real estate investments? ›

Home prices and home sales (overall and in your desired market) New construction. Property inventory. Mortgage rates.

What are the 4 stages of building wealth? ›

Barbara Stanny describes the four stages of wealth as Survival, Stability, Wealth, and Affluence. Based on thousands of hours as both a client and a counselor in the money coaching process, here is my understanding of each stage.

What is the Buffett rule of investing? ›

“The first rule of investment is don't lose. The second rule of investment is don't forget the first rule.” Buffett famously said the above in a television interview.

What is the 70% investor rule? ›

Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home. The ARV of a property is the amount a home could sell for after flippers renovate it.

What is the 1 investor rule? ›

Key Takeaways: The rent charged should be equal to or greater than the investor's mortgage payment to ensure that they at least break even on the property. Multiply the purchase price of the property plus any necessary repairs by 1% to determine a base level of monthly rent.

What is the 7 rule in real estate? ›

In fact, in marketing, there is a rule that people need to hear your message 7 times before they start to see you as a service provider. Therefore, if you have only had a few conversations with the person that listed with someone else, then chances are, they don't even know you are in real estate.

What is the 5% rule for renting vs buying? ›

The 5% rule, when comparing renting and buying a home, suggests that it may be more financially advantageous to buy a home if the annual cost of owning the property, including mortgage payments, property taxes, and maintenance, is less than 5% of the property's purchase price.

What is the 5 2 rule in real estate? ›

During the 5 years before you sell your home, you must have at least: 2 years of ownership and. 2 years of use as a primary residence.

What is the 1 rule in real estate? ›

The 1% rule of real estate investing measures the price of an investment property against the gross income it can generate. For a potential investment to pass the 1% rule, its monthly rent must equal at least 1% of the purchase price.

Top Articles
Latest Posts
Article information

Author: Greg O'Connell

Last Updated:

Views: 5850

Rating: 4.1 / 5 (62 voted)

Reviews: 93% of readers found this page helpful

Author information

Name: Greg O'Connell

Birthday: 1992-01-10

Address: Suite 517 2436 Jefferey Pass, Shanitaside, UT 27519

Phone: +2614651609714

Job: Education Developer

Hobby: Cooking, Gambling, Pottery, Shooting, Baseball, Singing, Snowboarding

Introduction: My name is Greg O'Connell, I am a delightful, colorful, talented, kind, lively, modern, tender person who loves writing and wants to share my knowledge and understanding with you.