While the world is awash with numerous investment opportunities, many people have gravitated towards real estate for decades. Yes, many investors want tangible assets they can account for and derive a sense of achievement. Real estate is one of the world’s most profitable and stable investments. According to Statista, the U.S. real estate market is expected to increase at a 4.70% annual rate until 2028 to hit $142.90 trillion. Investing successfully in real estate can provide passive income, build equity, and diversify your portfolio.
Unfortunately, the terrain is marred with challenges like market fluctuations, maintenance costs, taxes, and legal issues to make your investment successful. Therefore, you must first learn the secrets of making safe real estate investments to overcome these challenges. Interestingly, this article teaches the various ways of achieving safe future real estate investments. Let’s start!
1. Why It’s Important to Invest Wisely
Investing wisely in real estate can be rewarding to generate income and build wealth. According to the National Council of Real Estate Investment Fiduciaries (NCREIF), long-term investment in real estate annualized returns average 10.3%. However, safe future real estate investments involve significant risks and challenges. For instance, you might face expenses like repairs, taxes, insurance, or legal fees. Moreover, you may encounter market fluctuations due to changes in demand, prices, or interest rates. Worst, you may have to deal with troublesome tenants, competitors, or environmental issues.
Such risks and challenges can affect your cash flow, investment return, and overall financial situation. Fortunately, you can avoid them or minimize their impact by investing wisely. Investing wisely means having a clear goal, a realistic budget, and a sound financial plan. It involves doing your homework and researching the market trends, the supply and demand, the rental rates, and the appreciation potential of the area you are interested in.
In addition, consider the risks and challenges that may arise and have a contingency fund and an exit strategy in case things go wrong. A well-thought-out real estate investment helps you achieve your financial goals and secure your future by providing a steady income from rents, capital gains from appreciation, tax benefits from depreciation and deductions, and leverage from home mortgage loans. Conversely, failing to make prudent steps exposes you to losses, liabilities, and lawsuits.
2. Finding Well-Constructed Homes
One of the most important factors to consider when looking for safe future real estate investments is the quality of the construction. A well-constructed home can save you money and time in the long run as it reduces the need for repairs, maintenance, and upgrades. Additionally, the value and appeal of your property and the comfort and safety of your tenants or buyers will be top-notch for a relatively long period.
When finding well-constructed homes, look for homes designed and built by a reputable design build firm. These homes are built using cutting-edge technology and top-notch supplies, making them last longer and require less frequent maintenance. High-quality materials contribute significantly to the durability and overall quality of the home. Remember, homes built in areas with stable soil conditions and proper drainage systems are likely to have better foundations and fewer structural issues over time. So, factor in the location.
Moreover, make sure to enlist the services of professional home inspectors. These professionals will keenly check for defects or damages by examining key aspects like the structural integrity, the electrical and plumbing systems, the roofing and siding, and the appliances and fixtures of the home. They will also provide you with a detailed report and recommendations on the necessary repairs, maintenance, and upgrades the home may need, thus enabling you to decide. According to Forbes, a credible home inspection costs approximately $350.
3. Is It a Flip or True Renovation?
The next step before making safe future real estate investments is determining whether to go for a flip or home renovation. A flip is a quick and superficial property makeover, while a true renovation is a thorough and quality improvement. Flips can be risky and costly to the buyer, as they may hide serious problems or defects that require expensive repairs or maintenance. Conversely, true renovations are beneficial and profitable, as they increase the value and durability of the property, guaranteeing the comfort and safety of the tenants or future buyers.
Checking whether a commercial property is a flip or a true home renovation is important because it can affect your investment’s profitability, risk, and value. But how do you tell whether it’s a flip or true renovation? Simply examine the improvements in detail. Flips typically involve cosmetic changes like paint and flooring, focusing on aesthetics rather than structural enhancements. True renovations, on the other hand, target structural upgrades, energy efficiency improvements, and overall functionality enhancements. Additionally, research the property’s history and obtain inspection reports to reveal whether previous issues were concealed during a quick flip or genuinely addressed in a thorough renovation.
4. Does It Need Work?
To achieve safe future real estate investments, you should invest in properties requiring fewer repairs or improvements. This will reduce repair and upgrade costs and spare your return on investment. To check whether the property needs work, consult a reputable home inspector.
As previously mentioned, these professionals have a keen eye for details. They know the critical areas to check for possible damages or defects from the roof, electrical, and plumbing work to the foundation, floors, and walls. After inspection, the professional works closely with reputable home remodelers to present you with an estimate for improvements.
If the amount you’d spend for improvement is higher than what you’d get in return, that’s not a worthy investment. Consider only properties needing manageable repairs and a good ROI. According to the 2022 Remodeling Impact Report by the National Association of Realtors (NAR), a new roof install has a 100% ROI and boosts property value by up to 6%.
5. Prioritizing Energy Efficiency
A significant factor that can affect the profitability and sustainability of a real estate investment is the energy efficiency of the property. It refers to the energy required to provide a certain level of comfort and functionality in a building. An energy-efficient property reduces energy consumption and environmental impact while increasing the value and attractiveness of the property. More buyers and renters are looking for green and eco-friendly homes. For example, a study by Freddie Mac found that homes with high energy-efficiency ratings sold for 2.7% more on average.
To determine whether a property is energy-efficient, check whether its appliances have the Energy Star label. Another way is by evaluating the type of insulation material used in the property and its R-value. Energy-efficient homes prioritize high R-value materials and fiberglass or spray foam insulation installation. Finally, inquire about the utility bills from the previous owner or the property seller to get a sneak peek of energy consumption. Is it a worthy investment? A good investment is characterized by relatively low expenses.
6. Getting Through Home Inspection
For safe future real estate investments, you must ensure the home is in good condition and has no hidden problems that could cost you a fortune later on. The best way to guarantee this is by conducting thorough home inspections involving a visual examination of a home’s physical structure and systems, covering everything from the roof to deck inspections. Popper inspection can reveal issues that are not obvious to the naked eye, such as leaks, cracks, mold, pests, faulty wiring, and more
Sadly, home inspection isn’t a simple DIY thing – it requires professionals who can provide you with a more reliable, thorough, and objective property evaluation. Depending on your state, these professionals should have the necessary licenses from relevant bodies. For example, if you live in Florida, ensure they have a license from The Florida Department of Business and Professional Regulation. Next, inquire about the specific home inspection they perform and what kind of report they provide. The best home inspectors cover all the major systems and components of the home.
7. The Value of Curb Appeal
Curb appeal refers to the attractiveness of a property’s exterior and how it appears to potential buyers or visitors from the street or sidewalk. According to The University of Texas at Arlington, curb appeal increases the value of a property by up to 7%. That’s a good thing for your financial wellbeing, isn’t it?
One of the key things that shape the curb appeal of a property is the overall landscape design. Check for the careful orchestration of outdoor elements, encompassing everything from lush greenery to well-defined hardscape features. Additionally, pay attention to the condition of exterior elements like the paint, roofing, and entryways. A fresh coat of paint, a well-maintained roof, and a welcoming entryway can make a property look more appealing and inviting and reflect the owner’s care and pride.
8. Prioritizing Location
The next important factor to consider when looking for safe future real estate investments is the property’s location. It affects the demand, price, and profitability of real estate. For example, properties close to amenities, commercial development services, transportation, schools, and employment opportunities tend to have higher value and attract more buyers and renters than isolated or undesirable areas. Location also influences the potential growth and development of the area, which can affect the future value and appreciation of the property.
One way to determine the best locations to invest in is to research the market trends and statistics of different areas and neighborhoods and compare them based on various criteria, such as median home prices, rental rates, vacancy rates, occupancy rates, price-to-rent ratios, and return on investment. Also, consult with local real estate experts, such as agents, brokers, appraisers, and developers, who have in-depth knowledge and experience in the area and can provide valuable insights and advice on the best locations to invest in. Furthermore, visit the area and inspect the property personally to assess the property’s condition, quality, and suitability, as well as the neighborhood and the community.
9. Understanding Your Future Buyers
Achieving safe future real estate investments requires you to be keen and careful, especially if you plan to resell your property. You need to understand who your potential buyers are and what they are looking for in a home. This enables you to make smart decisions to increase your property’s value and attractiveness and reduce the risk of losing money or time in the market.
The best way to understand your future buyers is to look at the current trends and demands in the real estate market. Consider current trends like the growing demand for green and sustainable homes, as more buyers recognize the environmental and economic benefits of reducing their carbon footprint. According to a study by the Green Building Council, green buildings can give you a payback in as little as 3-5 years. If you are looking for properties that appeal to environmentally conscious buyers, invest in homes installed with superior solar panels by trusted solar contractors.
Another way to understand your future buyers is by analyzing demographic and lifestyle factors. Consider your target audience’s age group, income level, and preferences. For example, if you are targeting young professionals, invest in properties with modern amenities and proximity to work, and for families, prioritize spacious homes near schools and parks.
Additionally, engage with local real estate agents and conduct market surveys for valuable insights. These professionals can help you price your property competitively, market it effectively, and negotiate with potential buyers. According to a National Association of Realtors study, 89% of home buyers enlist a real estate agent to sell their homes. Consequently, working with a trusted and experienced agent can increase your chances of selling and avoid time wastage on the market.
10. Making the Most of Multiple Markets
Warren Buffett, one of the most successful investors ever, said: ‘Never depend on a single income. Make investments to create a second source.’ These words advise investing in different markets for safe future real estate investments. This way, you can diversify your risk and reduce the impact of market fluctuations. Therefore, if one market suffers from a natural disaster, an economic downturn, or a regulation change, you can still rely on the income and appreciation from your other markets.
For example, instead of investing in one specific property type, such as residential homes, consider branching into commercial properties and industrial spaces. You could even invest in an exotic animal hunting lodge, which is growing in demand thanks to the luxurious experience they offer hunting enthusiasts. According to a report by Grand View Research, the global hunting market size was valued at $15.5 billion in 2020 and is expected to grow at a compound annual growth rate of 8.3% from 2021 to 2028. Investing in multiple markets lets you protect your finances and take advantage of each market’s opportunities and trends.
As you have learned, making safe future real estate investments requires a clear, well-thought-out plan. It isn’t something you jump into blindly with hopes of massive return. Your only way to succeed in real estate investment is to pay attention to all the details we’ve shared in this post. Begin today, and you’ll soon boast tremendous progress.