Investing in real estate can be extremely rewarding. However, there are risks involved so you should proceed with care. Points to consider:
Location. The three most important factors in real estate investing are still location, location, and location, as the old saying goes. Whether you buy a beach house as a rental property or invest in a local office building, selecting the right spot will be critical. Be sure you know where you’re buying, as well as what you’re buying. Do some research so you don’t overpay.
Leverage. For maximum real estate profits, invest with borrowed money. Suppose you decide to buy that beach house for $200,000, and rent it out. If you make a 20 percent down payment, you only have to invest $40,000 in the deal. The other $160,000 will come from a mortgage loan.
Say that house doubles in value over the years, to $400,000, and then you sell. You can pay off the $160,000 loan and keep $240,000. The house may have doubled in value–but your $40,000 down payment has grown six-fold.
Leverage works against you if the property loses money. You still owe interest on the money you’ve borrowed. You’ll want to see a comfortable cushion between the property’s value and the amount you’re borrowing.
