Every day the prices of houses keep rising. This is a temptation that lures investors into property development, also known as real estate, and many are contemplating bigger opportunities through real estate. It promises greater wealth than traditional investing, but has more potential pitfalls for amateurs, and a whole new world of wisdom to grasp. But, why venture into property development anyway?
Benefits of Investing in Property Development
Every investment has its bright side, and for properties, here are the benefits.
1. Stable, predictable income stream
Rent rises slowly, but it is somehow stable even during economic crises, only falling a bit. You can’t question how much your property for rent will produce next year. It will produce just as it has done. If not, there’s a problem of poor management.
2. Property appreciates in value over time
As a property appreciates, the rent will also rise with it. This means that you will have an ever-growing income stream as time goes by.
3. Passive income stream
Income from properties is more passive than running a traditional business. However, it should not be 100 percent passive because if you lose track of what is going on in your business, it loses the safety buffer it was meant to have.
4. Better tax benefits
Real estate offers tax benefits that are not found in most investments. The most important of these is tax deduction given for depreciation of property. This makes it possible for the investment to produce a good income while only part of it is taxable. Thus, if a property is not fully depreciated, part of the income generated each year will not be taxed.
5. Inflation resistance
Payment for your monthly mortgage is fixed. This protects your real estate from inflation. Monthly mortgage payment does not increase even when the prices of goods and services escalate.
Knowing the benefits it promises is not enough, real estate has its commandments to obey and pitfalls to avoid. This will save you from losing lots of money.
Tips for Buying and Selling Properties
If you keep this advice in mind, you will go a long way in property dealing.
1. Select a good site.
Most people think they know the meaning of “good site” but they don’t. It’s not mandatory that a good site must be the best place in town. When you buy in the middle of the best place in town, you’ll pay the highest price, giving you no room to make a profit.
When it comes to selling property, being close to schools, public transport and other amenities is what’s essential. Learn to look out for such areas because this is what your buyers want most.
2. Profit comes when you buy, not when you sell
In a real sense, you make your money when you buy a property and not when you sell it. Every amount cut from the asking price is what you gain. If you buy property for the full price, you may not make a good profit—however good it seems. So, bargain.
3. Do proper research
Real estate is risky business. It’s possible to make a huge profit, or lose everything and become a pauper for the rest of your life. Therefore, before you buy, do good research. Find out how much similar properties in that area go for, the cost of searches, and other applicable fees. Again, find out if there are any restrictions on the property and get to know the cost of renovation. After working out the figures, find out whom you’ll be selling to, how much you can get—be realistic—and if the profit margin is worth the trouble.
4. Find the right seller
Before you buy a property, you ought to find a motivated seller who will give you a good price because he or she MUST sell. You can get information from estate agents about why someone is selling. The best candidates are those in fixes such as going bankrupt, getting divorced, or those relocating abroad. Always look for ads on the internet and in newspapers because desperate sellers will always try to sell properties themselves.
5. Who is your target buyer?
Always keep your target buyer in mind once you have renovated your property. If you intend to rent an apartment or sell it to students, there’s no need to spend too much on the most expensive fittings. Despite this, high-caliber people will expect more from your finishes. In addition, if the house will be occupied by a family, consider the decor that you will give it.
Keep in mind not to give a property your taste, but to apply what will be appealing to your potential buyer.
6. Keep searching
For you to find properties, you have to search for them. Just get into your car—if you have one—and move around the neighborhood. You will find lots of homes for sale just by driving around. If you find a property that is derelict, find out who the owner is from the land registry.
7. Avoid being fleeced
The quality and cost of your renovation will depend on the builders you choose. So, before you select one, check out their earlier work and get references from their past clients. Before giving a go-ahead, have them sign a fixed-price contract. If not, you may end up paying more if the work gets prolonged.
8. Plan well
Many amateurs are so eager to make a profit that they forget to plan or get planning permissions. Planning well will save you money and time during the project. Before you start developing homes, make sure you have all the needed paperwork. This will save you from hassles when you will be planning to sell them.
Real estate is a profitable investment. But, for you to realize the profit, you have to do it right by observing these tips.