Investing in real estate is by no means easy, even if it has a risk-reward profile that is relatively better than other investment types. Numerous factors must be considered before purchasing a property, namely, location, valuation, and current market trends. There are also financial considerations, such as the following:
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Financial situation
Before pursuing a real estate investment, an individual or organization’s income should be stable first. Picking up a mortgage or paying a sizeable down payment when there is still no financial security at present or in the near future is far from a wise decision. A real estate investment, or any investment, for that matter, should fit the investor’s current situation.
Financial goals
Real estate investments have low liquidity, therefore venturing into it with no clear purpose may lead to unfortunate, unexpected results, including financial distress. The purpose of the investment should be identified first, whether it is for self-use or to obtain profit out of it.
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Financing options
Outright cash payment in real estate purchases is rarely the chosen alternative in transactions. Multiple financing options provide the investor flexibility, the most commonly known are traditional financing through loans, and the subject-to method and seller-carry-back methods. These involve loans that come at a big cost, but leveraging strategies can be applied depending on what best fits the situation.
Bharti Jogia-Sattar is an independent finance and accounting consultant who had previously worked in various industries including real estate. Visit this website for more insights on the real estate industry.
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