In challenging times there are always tremendous opportunities for smart investors to make profit. Investing in property can be an excellent way to generate wealth, and thanks to the current global economic crisis, buyers are now enjoying the upper hand in the real estate market. Here are some tips to help you invest in real estate:
Decide on an investment strategy
To be successful with your investments, you must consider your objectives before you commit your money. Are you trying to make a short-term gain, or are you planning to invest for the long-term? Do you need a constant income stream or are you more concerned about the growth in investment value?
When you are clear on your investment goals, then you can select an acquisition strategy that best suits your needs. If you have long term objectives to achieve property appreciation, you might purchase land or invest in a depressed area that you foresee will improve in the future. If you wish to make a quick profit, you might renovate a fixer-upper for immediate resale. If income is your priority, you might look for properties with high rental demand.
Know the costs
To determine if you can make a profit from real estate acquisition, you have to factor in the transaction fees that come with buying and selling properties. Along with the deposit which is usually 10 to 15 per cent of the cost of the property, you must have the funds for the closing costs, which can vary.
Some of the closing costs that you may have to pay include:
1. Attorney's fees: preparing the sales agreement, fee for transfer, preparing closing documents;
2. Professional fees: valuation report, surveyors ID report;
3. Government fees: stamp duty, registration fee, transfer tax, stamp duty on mortgage document;
4. Mortgage processing fees: commitment fees, mortgagee's attorney fee
You have to also consider recurrent costs such as mortgage payments, peril and home insurance premiums, strata fees, property tax, repair costs, as well as maintenance and security fees. Email email@example.com for a checklist that can help you to keep track of the various charges.
Find sources of financing
For most investors, acquiring real estate requires using other people's money. Borrowing to finance an investment can sometimes be risky, as you need to calculate if the interest costs are justified by the rental income and/or increase in property value.
If you decide to get a mortgage, remember that it may affect your ability to attain loans for other purposes, and that the payback will be a new monthly expense on your budget. If you are depending on rental income to pay the mortgage, devise an alternate plan if the tenant doesn't pay on time. Also bear in mind that your mortgage rate could increase with market interest rates.
If you pool money with others to purchase, think about the legal considerations of joint ownership. If you choose to use your personal funds, be careful not to deplete all of your savings. Remember that real estate transactions can take several months to complete in Jamaica, so it might not be easy to get back your cash in the event of an emergency.
Use expert advisors
There can be several pitfalls to real estate investing for the unseasoned investor. The first rule of success is finding the right location for your property. How can you tell if the area you have chosen will increase its value in the future? What about the physical property - will it require costly repairs that are not immediately obvious?
Then there are the legal considerations of property transactions. Do you know if the details in a sale agreement will affect the cost and completion time? What about the rental agreements - how can you protect yourself from unscrupulous tenants?
When it comes to real estate, you will need to depend on the advice of knowledgeable experts. Don't try to cut corners - find the best realtors, lawyers, contractors, or property managers that can help you to profit from your investment.
Be prepared to commit your time
Investing is not a spectator sport - just like any other business, you have to be willing to commit time and effort to achieve your objectives. If you want to be a successful real estate investor, you need to develop your skills in negotiating, basic accounting and property maintenance; and continually keep abreast of industry developments.
Copyright © 2009 Cherryl Hanson Simpson.
Cherryl is a financial consultant and coach, and the founder of Financially S.M.A.R.T. Services, Jamaica's number one source for practical, down-to-earth and independent answers for all questions relating to personal finance. Cherryl is currently writing her first book, The 3 Ms of Money. See more of her work at www.financiallysmartadvice.com and www.financiallysmartonline.com