What Are The Questions To Ask Before Investing In Real Estate?

January 4, 2022

Investing in real estate can be incredibly lucrative, but it isn’t for the faint of heart. The time is now for you would-be house flippers or prospective rental property moguls as the winter months can mean the best deals.

While the potential for a high ROI is here, it’s important to approach real estate investment with a healthy dose of realism. With this realism in mind, let’s discuss the essential questions to ask before investing in real estate.

How much risk do I want to absorb?

There are three main ways to invest in real estate:

Purchase shares in a REIT or become an inactive investor’s partner. If you’ve got the know-how, these options are the easiest and most passive ways of investing in real estate. Returns are somewhat quicker and more streamlined, and there’s no on-the-ground work aside from a few hours of research and the occasional meeting.
Rental Properties. Rental properties are much more hands-on, but if you find a good property in a good location with minimal repair requirements, you won’t wait long to see long-term ROI. Taking the time to find a good tenant is essential.
House Flipping Projects. House flipping is by far the most difficult real estate investment route, but it does have the highest ROI potential. Depending on the condition of the property at purchase, this can be a serious undertaking.

What are the risks of investing in real estate?

If you decide to flip a property, there has to be a significant amount of work put in to ensure that it sells at a profit. Not only will you have to spend money on improvements and renovations, but the market also has to either stay the same or improve by the time you're ready to sell - which is a gamble. You have to choose good finishings that will attract buyers and sell fast to minimize carrying costs.

Rental properties may not be as labour intensive, but a good tenant can be difficult to find - and retain. Take your time screening tenants, check their employment status, social media accounts, and any other resource you can. This is not foolproof, but it can help to find a long-term tenant that pays rent on time.

Many tenants prefer snow removal, lawn care, and other heavy-duty maintenance tasks included in their monthly rent. This is easy for a large rental corporation, but if you’re independently renting out your property - the costs can add up.

Being an In-active, money only investor is a gamble the same way flipping is depending on the strategy used, the market at the time of sale, and numerous other factors. You really have to research whether this option is right for you.

How do I find the right investment property?

When looking for houses for sale in St. Albert or Edmonton, it’s important to narrow down the neighbourhood you’d like your investment property to be in, as well as make notes of promising listings online.

Additionally, crunching the numbers is the key to success. Whether you are flipping a home or buying a rental property, calculate the realistic income you’ll make from the property (either per year or as a whole), and subtract costs for taxes, maintenance, renovations, and other miscellaneous costs. Divide the number you arrive at with the market value of the home, and you’ll have your capitalization rate - which should hover between 4 and 6 percent in most cases, but some properties can even see cap rates 8%+.

Note that while helpful, this is a very basic formula and should always be clarified and discussed with a REALTOR®.

Do I need a REALTOR® to invest in real estate?

While it is possible to successfully invest in real estate without a REALTOR®, it’s generally safer to work with one.

For beginners and seasoned buyers/ investors alike, the real estate market can be unpredictable and daunting. A qualified REALTOR® will act in your best interests and will take care to identify the ideal properties and neighbourhoods, help secure pre-approval for financing, and answer questions as they arise.

The Bottom Line

When it comes to looking at Edmonton homes for sale as investment properties, always consult with a REALTOR®. REALTOR®S®are knowledgeable about market trends and will be able to provide you with listings that reflect your investment goals.

Whether you’re listing your recent flip or looking for your new investment property, I’m here to help! I’m Jeneen, and as one of Edmonton’s top REALTOR®S®, I want to work with you to find investment-worthy listings to diversify your portfolio! Contact Jeneen by phone: (780) 904-4240 or by email: jeneens@remax.net.

Summary

Investing in real estate can be incredibly lucrative, but it isn’t for the faint of heart. The time is now for you would-be house flippers or prospective rental property moguls as the winter months can mean the best deals. How much risk do I want to absorb? While the potential for a high ROI is here, it’s important to approach real estate investment with a healthy dose of realism. There are three main ways to invest in real estate:

Purchase shares in a REIT or become an inactive investor’s partner. If you’ve got the know-how, these options are the easiest and most passive ways of investing in real estate. Returns are somewhat quicker and more streamlined, and there’s no on-the-ground work aside from a few hours of research and the occasional meeting.
Rental Properties. Rental properties are much more hands-on, but if you find a good property in a good location with minimal repair requirements, you won’t wait long to see long-term ROI. Taking the time to find a good tenant is essential.
House Flipping Projects. House flipping is by far the most difficult real estate investment route, but it does have the highest ROI potential. Depending on the condition of the property at purchase, this can be a serious undertaking.

These choices have clear risks so it’s important to consult with a REALTOR®. REALTORS® are knowledgeable about market trends and will be able to provide you with listings that reflect your investment goals.

Hi, I'm Jeneen Marchant!

I’m here to help you find you during your next Real Estate transaction. Home ownership is a beautiful thing and I love seeing my buyers happily opening the door to their new home on possession day. I also get great satisfaction from helping my sellers get the best price possible for their home when it is time to move on to another property.