6 Questions to Ask Yourself Before Investing in Real Estate for Your Business At a time when loan rates are low, a rental property investment has never been so tempting. Here are six questions to ask yourself before investing in real estate for your business.
Opinions expressed by Entrepreneur contributors are their own.
At a time when loan rates are low, a rental property investment has never been so tempting. So that you don't start without knowing what to expect, here are six questions to ask yourself before investing in real estate for your business.
1. Why do I want to invest?
First of all, make your intentions as clear as possible. Do you want to create real estate assets? Bring additional incomes to your business or reduce taxes? Then, estimate your means, and make sure you have a fairly stable financial base that will prevent you to from taking unnecessary risks.
Once your goal is crystal clear, and you are confident that you can get started without hitches, it will be much easier for you to find the right type of property for your investment strategy and your investor profile.
Related: The 4 Benefits of Owning Rental Property as a Business
2. What types of financial flows come into play?
Be careful. Make sure you're not only taking into account the rent and the monthly payment. There are other costs to plan, like management fees, rental insurance, if you use an agency and condominium fees, depending on the type of property. You may also have charges that differ depending on the country where the property in which you invest is located. Also, take taxes into account. Each money movement must be squared upstream.
Always remember to have a work envelope available, especially to plan the entries and exits of your tenants, but also for the potential punctual repairs. Similarly, depending on your investment area, as well as the status chosen beforehand, the rent your property generates can integrate your overall income, and that can have a significant impact on your taxation. If your investment is not squared, its return may seriously suffer as a result. Take all of these elements into account.
3. Have I carefully studied the potential of the area in which I wish to invest?
This is a very important point, which will largely determine the return of your investment and its lifespan. Unfortunately, we tend to not substantially study the potential of the targeted area of an investment. Many investors choose a city on the pretext that they know the area well, know where the attractive districts are and where the good addresses are.
Knowing the environment of a property requires that you are aware of specific analysis criteria, which one does not acquire just by living in a place. So, examine the number of vacant housings, the development of infrastructures and the extent of the employment pool. You also need to learn about the companies that are recruiting and especially the supply/demand ratio.
4. How will I pay for this property?
Do you plan to borrow the money for the property or acquire it in cash? If your business has cash to reinvest, which you had planned to invest completely in your real estate acquisition, using the leverage effect of the bank is part of the solution. You can use it in order to preserve the liquidity generated by your business and make it grow in investments where the bank's leverage cannot be activated.
Related: 4 Undeniable Truths You Should Know Before Investing in Real Estate
5. Do I know the market price?
Those who want to invest in real estate often tend to be wrong about the price per square meter. This value fluctuates, and the difference can be very important. The decision to buy a property or to retract can then be easily misled.
To understand the potential of a property, it is important to learn about a few key elements: the value of the property, the value of the land or the location of the property, the potential of the property and the long-term development of its area.
6. Have I squared my investment to be profitable for both buying and resale?
As a business owner, it is important to analyze the profitability of each investment as a whole. It is also important that your acquisition is profitable from the moment of its purchase. It is more than judicious to think about the resale potential, even before making this acquisition.
You should have a reliable idea of the city's advantages within 10 years. In this sense, the following criteria are essential:
The development of tertiary areas
The access by transports
The migratory flow
The price of the real estate market
Staying up to date on these developments lets you know if the city has already reached its full potential or if the value of your investment will take off in the future.
Did you answer all these questions? If so, then nothing is holding you back. If you are already thinking about a rental investment, with the idea in mind of multiplying your sources of incomes and making your business grow, congratulations, because it is a wise idea. By considering these six fundamental points, you will be able to define an action plan in order to crisscross your investment, invest in the best conditions and ensure a bright future for your business.