What You Need To Know Before Starting Real Estate Investments
If you want to be a good real estate investor, you should start by asking yourself the right questions before investing. What do I expect from this investment?
Am I making real estate investments for myself or my children? Every investment you make without asking such questions should be evaluated in the category of investments based on coincidences.
Let’s simplify the situation and give an example. If your investment and expectation is to have a roof over your head, the things you need to think about are very simple.
Your job, your children’s school, perhaps the distance to those who care for your children (grandmother, babysitter, kindergarten, etc.), the neighborhood you want to live in, your expectations regarding the size and age of the house, and of course your lifestyle. The problem we all usually face is that the houses of the standards we want in the area we are considering buying do not meet our budget.
At this point, it will make our job easier to list the items we care about, from the most important to the least important, and to determine the ones we can sacrifice. If the size of the house is the most important criterion for you, instead of living in an area you desire very much, you can choose to live in a place you desire less, but in a large house. As a result, searching for a place by listing the most important items for us will save time and prevent us from wasting our energy.
What Is Real Estate Investment And What Are Its Advantages?
But if you expect that real estate will bring you a regular income, then you should think about other things. If you want to improve yourself and become a “professional” real estate investor, you should not think about buying a house, renting it out, and earning income.
Residences pay back the money you invest in longer years than businesses. Moreover, they are properties that are more prone to wear and tear. When you want to rent out a house you bought today when your tenant leaves after 5 years, the deterioration of wet areas such as kitchens and bathrooms, called “physical wear”, will be very decisive in the rent you will receive.
However, such physical obsolescence in businesses does not lead to as great a loss of rental value as in residences. There is also a tax aspect to the matter. You pay the tax on residential investments, commercial personal investments are subject to withholding tax and it is general practice for the tenant to pay this withholding tax. In short, in commercial investments, the other party pays the tax.
However, if you do not consider yourself a professional in this business and are afraid to take risks, then housing is a good investment for you under any circumstances. Then you should invest by choosing the right regions, projects, risk-free properties, and places with potential.
So, what should investors pay attention to when considering buying a business for investment? First, the rent that the property in question will bring relative to the purchase price must be acceptable. Today, businesses generally amortize themselves within 13-15 years. What we mean by amortized labor is that your investment pays itself back.
What Are Real Estate Financing Methods?
For example, if a business you bought for 420 thousand dollars provides an average monthly return of 2,500 dollars, we get 420,000/2,500 = 168. If we divide this number by 12 months, we get 14 years. In this case, we can call the price of $420,000 an acceptable price level.
Of course, many other issues such as the location of the business, its size, its availability, its potential according to the development dynamics of the city, its visibility, and how eager the owner is to sell the property will also determine the price of the business.
Another issue that should be taken into consideration in commercial investments such as shops is that the property is located in the development areas of the city and consumer demands may be expected to change in another direction in the long term. For example, how will the business you plan to buy be affected when the construction of a shopping mall in the immediate vicinity is completed and the shopping center opens?
Apart from these, the business must be easy to rent. If a business that cannot be rented easily remains vacant for a long time, it will create a loss of value for the investor. It is also very important that a business purchased for investment is easy to sell. Having liquidity ability (saleability) when necessary will always positively affect the value of the business.
If you want your investment to remain for your children and gain value in the long term (after 10-20 years), if you do not worry about income, and if you like risk, then you may be a candidate for becoming a land investor. In this case, you should invest in land on the developing axes of big cities and where the city ends, and as a landowner, you should check your investment frequently.
If a conscious real estate investor makes the right predictions at the right time, he will win. The result is simple. There is no room for coincidences in real estate investment.
How To Choose The Right Location?
The most important answer to the question of how to choose a property that generates rental income is the location of the house. The value of every rental house is not the same. The location and facilities of the house increase its value.
The fact that the house is close to public transportation routes increases its value. Public transportation routes are among the points that tenants pay the most attention to when renting a house.
The fact that the property purchased for rental income is close to business centers is a feature that increases the preference rate. When choosing a home, working people first evaluate their work area and surroundings. In addition to the high rental income of houses located especially around hospitals, educational institutions, and public institutions, the demand rate by tenants is always high.
Social facilities around the property that generate income by renting not only accelerate the rental process but also increase the rental value. People who will rent examine whether there are parks, social areas, and shopping areas around the house.
It is desirable to provide easy access to necessities when renting a house. To buy a house with a high rental income, the location of the house should be close to public transportation alternatives, social areas, and shopping areas.
What Are The Strategies For Renting And Selling?
When choosing a house for investment purposes, calculating the rent multiplier can help you make the right choice. How long it takes to cover the value of the rented house is important to make a profit from the house.
Calculating the rent multiplier is quite easy. When choosing a house, first of all, the rent amount is learned if there is a tenant currently living in the house. If there is no tenant in the house, first the rent amount of houses with similar facades in the same building is learned.
It is important to examine comparable apartments to calculate the rental income of the house. It is calculated how many years it will take to cover the purchase price of the house with its rental income.
A depreciation period lasting more than 15 years is an indication that it is not profitable to purchase and rent the house. The depreciation period can be calculated by dividing the rental amount earned from the house in a year by the value of the house. In this case, houses that can be rented at a higher value should be purchased.
For buying a house to be rented out to be profitable, the purchase cost must be low and the rental value must be high. People who have difficulty deciding whether to use a house or a shop for rental income can decide by calculating the rent multiplier. It is always more profitable to buy real estate with a short depreciation period.
What Are The Tax Advantages Of Real Estate Investments?
Real estate investments offer many tax advantages for investors. The earnings of real estate investment funds are exempt from corporate tax. For this reason, the 23% corporate tax is not required in many countries.
This allows more resources to be allocated to investments. A withholding tax is foreseen on the exempt earnings of real estate investment funds, but the rate of this withholding tax is applied as zero. Since there is a withholding tax, even if it is zero, there is no additional withholding tax on profit distribution when the fund distributes profits.
For this reason, the tax burden on the profits earned by small taxpayer foreign institutions from the funds is zero. Income earned by investors from returning the funds to the fund or disposing of them in other ways is subject to a 10 percent tax deduction. No annual income tax return is made for these incomes.
See you in the next post,
Anil UZUN