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What to consider before investing in real estate

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Whether you’re a seasoned investor or going at it for the first time, you need to know that investing in real estate is an endeavor that not only requires some hefty funding but also a reasonable amount of smarts in dealing with the local real estate market.

Our team at the Cardinal Realty Group prepared a list of the things to consider before you enter the real estate investment sphere. Once you’ve taken these into account, then you’re ready to engage in the commercial real estate game.

Determine your investment goals

Before anything else, determine the purpose of the investment. Ask yourself: What will you use the property for? Having a clear investment goal will have an impact on the type of property you choose to buy.

Some investors may be interested in “flipping” a house they intend to buy. House-flipping entails the purchase of a property (usually distressed) which they renovate then quickly resell for a profit.

Others may be interested in buying a space then renting it out – a wise way to generate passive income.

Still others choose to “buy and hold.” This means keeping the property in your portfolio until its value appreciates over time.

Make sure you have enough savings

Experts will advise you to buffer your investment with savings of up to 30-35% of your intended purchase price. These savings can be used for repairs to the property as you prepare it for occupancy and use.

Lenders are usually stricter with investors. They will be looking at the number of liquid assets you’ll have left after paying your down payment. Most lending institutions will require a 20% down payment, as well as savings that will last for up to three months.

Learn how to crunch the numbers

Familiarizing yourself with the math involved can definitely help you make smarter decisions down the line with your investment. Here are a few rules of thumb to keep in mind:

  • Rule of 72. Divide the fixed annual rate of return by 72 to determine how quickly you can recoup your investment.
  • The 1% Rule. If you can rent out your property for 1% of the purchase price, then you should be able to make mortgage payments using rent proceeds.
  • The 50% Rule. On average, half of the rental income for a single-family home will be spent on operating expenses. Make sure you have enough to cover for said expenses and still make a sizable profit.

Bring together a team of professionals

Behind every successful investor is a team of trusted, reliable professionals in the local real estate industry whose expertise covers a wide scope of strengths. These are the people who can guide you through the buying process. Make sure to do your research and listen to recommendations from family and friends. Read reviews and request for referrals.

Let us guide you through the ropes of commercial property investing from listings to sales. With over 30 years of experience dealing in commercial real estate in the St. Louis, Missouri area, we’re the experts to call. Get in touch with our team at the Cardinal Realty Group via 636.225.0385 or email us at Hal(at)CardinalRealtyGroup(dotted)com. We’re looking forward to taking this real estate journey with you!