Key Factors to Consider When Investing in Real Estate

Being an investor, I follow two value rules whenever I consider investing in real estate which are:

• It is better to think long and hard before making a decision.

• It is best not to pay too much for any property.

The first rule spells out just how important it is to carefully consider all aspects of a real estate investment before investing your hard-earned money. The second rule of investment however is pretty straight forward – don’t pay too much for a property. That is to say you must not invest every single penny while starting a business even if you are sure about its profitable outcome. Similarly, it is important to look at the P/E (Price to Earnings) ratio while investing in real estate. Instead of selling properties for profit, my experience tells me that it is better to let because property prices may fluctuate in the short run but in the long run, property prices are significantly influenced by rental values. Also by looking at the P/E ratio of your investment property, you can learn about your existing property’s “intrinsic” value.

Low P/E means you have gotten a good deal and if your P/E is high, you better not consider buying such a property. Real estate is not a liquid asset so instead of repenting later, my advice for all the potential and newbie investors is to invest wisely in real estate only after conducting a thorough research. You must also have good reasons to invest in real estate.

If you are investing in real estate for all the right reasons and you have evaluated your risks as well, you are likely to make a good investment.

How to Wisely Invest in Real Estate?

1.    Speculation vs. Investment

Buying risky property with high P/E and expecting that somehow the prices will go up, even though chances are they might not, is speculation. However, buying property after thoroughly evaluating it to collect high income either in the form of capital appreciation or rental amount is investing. Investing is a safer and smarter way to go ahead in real estate business.

2.    Thinking Property will Always Go up in Value

Most of the newbie investors buy property because they believe the value of properties has to go up and it will. In my experience, this is the worst reason to do so and the most dangerous one as well. Investing in real estate on mere hopes to see a spike in prices is speculation. For example, if you have plans to invest in Abu Dhabi real estate sector, you must invest in the top performing areas instead of risking your money in any new community just because you have hopes that it will start performing well in the near future. Try to avoid speculative real estate investment.

3.    Get Started with Residential Property

Residential property is always easier to purchase and manage as compared to commercial property. Therefore, if you are a newbie investor rather than trying your luck in the commercial sector, it is better to first gain some experience in the residential sector. Start your investment career with this type of property purchase and learn how to stay on top of things.

4.    Don’t Believe Everything you Listen or Read

Sellers and real estate agents ultimately want you to buy the property they are selling. Therefore, they paint a rosy picture in front of you and do not present the actual scenario. You must meet different professionals and take advice from people around you to find out the performance of the particular area where you are planning to invest. Once you get a clear picture, it will be easier for you to make a decision.

The Bottom Line

There are no get-rich-quick schemes in real estate investment market. In order to make a profitable investment, keep your eyes open and evaluate your options from each and every angle to make the most of your investment.

Peter Birganza is the Marketing Analyst at Bayut.com. He has been sharing his expertise for Bayut.com on Abu Dhabi properties for many years.

 Image Credit: Shutterstock.com

Tags: investing, Peter Birganza, real estate

Category: Investing & Earning, Money Basics