Real estate investment is one of the popular ways among investors to earn passive income. The statistics released by State Bank of Pakistan revealed that the real estate industry contributed 2.6% to Pakistan’s economy in 2020. Moreover, it is expected that the real estate industry would expand by 30% in the next five years. If you’re a beginner in the world of Real Estate, you need to learn a few significant tips about managing real estate investments before risking your money.
Read on to learn from iReal Projects’ Guide for first-time Property Investors!
Table of Contents
How do you Begin? Ways to save up!
Everyone aspires to become a real estate investor and earn considerable passive income to increase one’s wealth. The first and foremost concern of a new investor is where and how to begin?
Before you invest your money in a real estate property, you must take your financial state into account.
Assess your sources of funds versus excess funds. Do you have enough cash in your bank account to buy a property? Do you intend to take a loan to make an investment? Is it worth selling your existing property to invest in another property?
All of these are important questions and each scenario could have unique consequences. Such as, if you do not have enough savings in your bank account, you may not be able to bear loss due to market fluctuations. Taking a loan for investment purposes can cause severe financial strain. Buying a property at installments might sound a more affordable option, however, will you be able to manage regular installments given your sources of funds?
Since you are a new investor, chances are you do not have huge sums of money lying around. Moreover, it is not recommended to invest your money from a lifetime of savings into a single property! Answer? Diversify!
The choice of investment alternatives has been elaborated in the next section.
Here, we would like to emphasize the importance of financial analysis and diversification. The key points have been mentioned below:
- Identify your sources of income and funds
- Identify your excess savings
- Keep a buffer of Rainy Day Funds! (You don’t want to be dependent on your invested money for immediate expenses or trivial emergencies)
- Invest some of your savings in Gold, Foreign Currency or keep in cash to diversify the risk!
- Choose the project wisely. Don’t get lured in by just catchy marketing taglines, Do your research!
- Hire a good Real Estate Consultant or Agent! (SEE MORE: Top Five Reasons Why Your Real Estate Agent Is Your Well-Wisher)
Identify your preference
Once you have sorted out the finances for investment, you must make a decision about what type of real estate property you should buy. A naive person can easily get overwhelmed by several types of properties being offered in the market and could end up making an unclear decision.
This decision is based on your investment plan; is it a long term plan or short term? Rental properties make a good option for long term investment while investing in a plot file make a good option for short term plans.
The type of property you should buy is associated with your preferences:
- If you want to keep earning from your property, you must buy a rental property.
- If you want to earn capital gains from your investment, you can invest in a developing project and sell it off on a suitable profit.
- If you want to save up for your house or get a plot for your own house, you must consider the location.
Hire a Real Estate Consultant, such as Beacon Investment, to help you sort through your preferences and suitable investment so that you can make an informed decision!
Awareness of Market Trends
As an investor, you must be aware of what are the latest investment trends in the real estate market. Which projects are famous, what projects are in demand, and which projects have lost their charm for investors. If you keeps tabs on these things and the factors behind these circumstances, even first-time property investors can avoid bad decisions.
Such as shared offices and commercial shops in malls have lately been a preferable choice among investors.
Some projects do not attract investors due to different reasons; such as the legal status of a project is not confirmed or a project has delayed ballots or slow development progress, etc. The rates for such projects are inclined to go down, consequently, causing loss to investors.
This is why a few important things an investor must know include:
- How to identify credible developers?
- How to check if a society is legal! Or has been issued NOC!
- How to identify scams.
- Should you hire a Real Estate Agent? (SEE MORE: Seven things you need to know before you choose your Real Estate agent!)
- How to secure your deal or transaction through the right documentation.
Managing the Investment
You have an investment goal while investing your money into a real estate project. Once you have acquired an asset after investing the money, all you could think about is how to gain the maximum returns.
You’ll need to understand the dynamics of the market and assess how long should you hold the asset before you sell it for profit. For example, if a project’s demand is decreasing, should you decide to sell the property right away to avoid loss or should you wait till the prices hike again.
Sometimes if a property is not sold for long, it gets devalued with time and chances are that you’d fail to achieve the returns on investment you were wishing for. However, some projects give returns after years of holding the property before selling it.
Hence, making the right decision at the right time is crucial. (It is important to go back to Step 2. Identify your preference because sometimes a property would allow you to earn a profit after long wait).
Moreover, after you have earned the profit, as an investor you may want to use this money to invest in some other project which has the potential for higher returns. An agent can guide you better in this regard since real estate agents have accurate information about existing and upcoming real estate projects and vast connections that can help you invest in the right project.
If you intend to make an investment in real estate property for the first time, you are prone to make uninformed decisions. Hence, it is recommended to conduct comprehensive research before you invest. What is your financial state; Do you have a long or short-term investment plan; What type of property should you invest in?; What are the current market trends; What taxes would be applicable? If you are aware of all these things, you can make your first investment profitable.