When buying real estate properties, there are a number of important factors to consider to make sure that your purchase will turn in a profit, or not lose value as time passes. In this article, we will discuss some of the factors to look for when investing in real estate properties.
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Determine your investing goals
Prior to your real estate property search, you should first determine your goals on investing. Without any goals or objectives, you will lack focus and clarity, which can lead to bad decisions. If the property has a mortgage, bad decisions can cause to financial loss.
Some of the most common purposes on why people invest in real estate properties include the following.
- Self use
Self using a property means that you will not rent it or sell it later in favor of using it for your own purposes. This will allow you to save money on rent, while potentially increasing the value of the property with cost appreciation. If you want to self use a property for a long time, it is often a good idea to invest money in its renovation and adding new improvements.
- For lease
Leasing a property provides a steady source of income via rent, while simultaneously increasing the value of the property with appreciation.
- Short term buy and sell
People looking for a quick way to earn profit via real estate investing typically take advantage of short term buy and sell. It offers the fastest turnaround for your investment since the property will be sold once work on it is done.
- Long term buy and sell
Long term buy and sell means that the property’s value is increased not just with renovations and new construction, but with time valuation as well.
This type of real estate investment is done to achieve or further the completion of a long term goal, like saving for retirement.
Cash flow and other income possibilities
The cash flow on a real estate transaction refers to the money left after all of the expenses incurred in buying and improving the property. You should aim for a positive cash flow to make sure that you turn in a profit for your troubles.
How to make sure that you have a positive cash flow
Below are the factors to look out for to make sure that you have a positive cash flow. We recommend you to create a projection chart for each of these factors.
- Expected income from rent, taking inflation into account
- Projected value increase from property appreciation
- Tax benefits and exemptions
- Value reduction from depreciation
- Mortgages on the property
- Renovation and improvements expenses