To answer the most commonly asked questions about real estate investment, understanding various factors is essential.
Real estate investment seems overwhelming to beginners because of the significant financial growth linked to it. In Pakistan, it is one of the most lucrative and highly-profitable investments. Construction projects across the country are attracting investors to secure their assets for a better future.
However, investing in the real estate industry is a complex process. Many new investors fail because they are unaware of the factors that can influence their investments. They tend to repeat common mistakes and lose their investments. So, a solid knowledge of the industry is essential before pouring money into real estate.
One way to predict the ups and downs of the market is to ask questions from experts. Real estate market analysts keep a track of key factors over time as it helps them predict market dynamics accurately. Gaining their insights can give you direction when investing.
Graana.com, Pakistan’s smartest property portal, brings you answers to the 10 most commonly asked questions about real estate investment.
10 Most Commonly Asked Questions About Real Estate Investment
Familiarity with answers to the most common questions of real estate investment can help to avoid the most common mistakes during real estate investment. Here are the questions that every new real estate investor asks:
- What are the ways to determine the value of an investment property?
- How can one finance real estate deals?
- What is the best real estate investment strategy?
- Where can one find profitable investment areas?
- Can investments in real estate begin with no money?
- Are real estate agents essential to buy or sell any property?
- How can one predict rent charges for their property?
- How can one find the right tenant for a property?
- Who handles the basic repair value of a property?
- What should be the financial goals?
Let’s dig into the details of these questions and find out the answers.
What are the ways to determine the value of an investment property?
As a beginner in the real estate market, it can be difficult to find out the prices of properties. When it comes to selling or buying a property, both sides involve different factors. So, what are the ways that can help determine the value of a property?
Comparative market analysis (CMA) is one of the best methods to solve this problem. While working in a market with many properties on sale and many investors involved, it is easy to predict the rates of a property according to the area. An in-depth analysis of the most recently sold properties can give you the best estimate.
CMA reports are set by the real estate agents in the market, which helps new sellers and buyers with listing prices and estimates for investments. CMA compares one property to another with the same features, area, and facilities.
Another way to predict a property’s value is to get help from government officials. Land record offices have all the properties listed according to their locations. Moreover, they set a base price per sq. ft. of each property. Hence, it can help a lot in predicting the overall price of the property.
How can one finance real estate deals?
For most beginners, financing a real estate deal is the biggest problem. With no stable income sources, they fail to invest in any property and eventually fail to get started. However, proper awareness of potential sources that can generate finances for investments can be helpful.
There are two ways to generate finances: selling an old, self-owned property or acquiring conventional property investment loans. The first method can become a source of positive ongoing cash flow. Selling a home and then buying a new property can give you hefty annual returns on your initial investment.
Most people living in rural areas of Pakistan own a large number of properties. But, due to remote locations, these properties are considered practically worthless. So, these days, people from rural areas are selling their properties and investing in real estate projects in major cities instead.
On the other hand, for most investors with no previously owned property, loans are the only way to start real estate investments. However, these investments are not desirable as annual returns are not too high.
What is the best real estate investment strategy?
Without a proper strategy, a real estate investment is bound to fail. According to real estate experts, most beginners lose their investments because they do not strategize beforehand. Beginners are under the false impression that possessing a sufficient amount of money is all that is required, and it will give them profitable returns straightaway. However, the reality is pretty much the opposite.
Successful real estate investors formulate a strategy based on their investment goals, which helps them in their next venture. It provides them with a timeline to hold on to their assets and then invest at the right time. So, tuning investment strategy to goals is essential.
Generally, there are three main strategies that successful investors follow: opportunistic, add-on, and core. Moreover, factors such as types of property and location can also influence the decisions. For example, commercial properties are profitable as compared to residential properties.
How can one find profitable investment areas?
A very important factor to consider before investing in real estate is to choose the right area. Pouring money into properties with no real value is not a good strategy. With the recent widespread development of residential and commercial projects around Pakistan, property prices have skyrocketed.
Commercial properties have a higher value as compared to residential properties. For an investor who is looking to grow assets in a relatively short time, investment in commercial areas is recommended. Houses need repairs and time to increase their value.
Moreover, the availability of water, gas, and transport systems near a property also influences its value. If it does not have such facilities, it is not desirable for buyers.
Can investments in real estate begin with no money?
The state of one’s finances is the most important factor to start a real estate investment. However, in the case where investors do not have enough money to pay for down payments, investors need to be more creative. Funds can be generated in several ways to finance a real estate deal. However, these cannot be guaranteed each time as the market keeps changing. Some of these ways have been listed below:
- Real estate partnerships
- Wholesale dealings
- Conventional property investment loans
- Home equity loans
Are real estate agents essential to buy or sell any property?
One can start investing in the real estate market without any external help. However, the process will be time-consuming and rigorous as the market is much more complex to understand. The presence of a real estate agent can help a great deal as they are aware of all the complexities of the market as well as the processes that are involved in a property deal.
From evaluating markets, finding an attorney, and getting pre-approved loans, to negotiating and closing the deal, the real estate agent makes everything smooth and easy. However, with hundreds of agents in the market, scammers get the chance to target investors. So, choosing the right real estate agent is also important.
How can one predict rent charges for my property?
For investors who purchase properties to rent them out, a basic awareness of the right rent charges is essential. Proper rent estimation helps in advertising the property. An over-estimated property may remain vacant and a low-rented property might end up in negative cash flow.
An analysis of how tenants navigate the competitive rental market gives the best estimate of a property’s rent. Local market conditions and rates can also help you in advertising your property with the right rent charges.
How can one find the right tenant for a property?
If you have rented out a property, you would want to ensure that it is kept safe and protected. A good tenant takes care of your rental property and also makes rent payments on time.
When choosing the right tenant, proper screening is important. Check the references they have provided you with for a more thorough screening process.
Who handles the basic repair value of a property?
While purchasing any property, buyers are concerned about the expenses of basic repairs. Hiring professional teams can cost you a lot of money and affect your profits. If you are a new buyer, you should preferably do all the minor repairs yourself. It will help you keep the cost in control.
However, if you are a potential real estate investor, then you can hire a team to carry out all the repair and renovation work, as this helps to enhance the overall rates of a property.
What should be the financial goals?
Just like the right strategy, the right financial goals are also important. Whether you are a part-timer or full-time investor, you need to have everything figured out. Should you hold on to the property until prices appreciate to make a profit? Or should you buy a commercial property to start your own business?
Before you start investing, also try to make an accurate calculation of whether you might end up losing money in the first few months, the point at which you may break even, and how much you can expect to make after three to five years.
Factors Influencing Real Estate Investment
Apart from all the above questions, new investors must also be aware of the factors that can influence their real estate investments:
- Demographics of the country
- Government policies
- The annual budget of the country
- Employment opportunities
- Interest rates on loans and property
- Market trust
- Tax policies
To get more information about real estate investment in Pakistan, visit Graana.com