Compared with other types of investments, real estate investing involves a relatively positive risk/reward profile, but with relatively low liquidity (ease of entry and exit). Let’s see several of the most important factors to be considered for investing in real estate. One good project great for investment coming to Mississauga by world renowned builder pinnacle is Perla Tower which is launching this week.
- Location of the Property
Why is it significant? The age old punch line Location, Location, Location still rules and remains the most important factor for effectiveness in real estate investment. Nearness to amenities, peaceful conforming areas, neighborhood status, scenic views, etc. are main factors for residential property valuations; while proximity to markets, warehouses, transport hubs, freeways, tax-exempt areas, etc. play a significant role for commercial property valuations.
What to look for? A mid-to-long term view, about how the area is expected to evolve over the investment period. Today’s peaceful open land at the back of a residential building might be developed into a noisy manufacturing facility in future, making the residential valuations less gainful. It is advisable to conduct thorough check about ownership, type and intended usage of neighboring areas, establishments and free ground in the locality.
- Valuation of the Property
Why is it significant? Real estate financing during buy, listing price during sale, investment analysis, insurance premium and taxation – all depend on Real estate assessment.
What to look for? Commonly used Valuation Methodologies include:
- Sales comparison approach: Current comparable sales of properties with similar characteristics –most common and appropriate for both new & old properties
- Cost Approach: All cost summation minus depreciation – suitable for new creation
- Income approach: Based on expected money inflows – suitable for rentals
III. Investment Purpose & Investment Horizon:
Why is it significant? Given the low liquidity and high value investment in real estate, lacking clarity on purpose can lead to unexpected results including financial distress, especially if the investment is mortgaged.
What to look for? Recognize which of the following broad categories suits your purpose and prepare yourself accordingly:
- Buy & Self-use: Savings on rentals, advantage of self-utilization and value appreciation
- Buy & Lease: Regular Income & long term value approval. Requires structure a temperament of being a landlord – for handling possible disputes & legal issues, managing tenants, repair work, etc.
- Purchase & Sell (Short Term): Quick, small to mediocre profit – usually buying under building properties and selling slightly high once ready
- Buy & Sell (Long Term): Large intrinsic value approval over long period of time; solution for long term aims like retirement planning, child’s education, etc.
- Expected Cash Flows & Income Opportunities:
Why is it important? The investment purpose & usage influences cash flows and hence profit opportunities.
What to seem for? Develop draft projections for the following modes of income & expenses:
- Probable cash flow from rental income – Inflation favors landlords for rental income
- Expected increase in intrinsic importance due to long term price appreciation
- Benefits of depreciation (and available tax benefits)
- Cost benefit analysis of renovation before sale to get superior price
- Cost advantage analysis of mortgaged loans vs value appreciation