Are you thinking of getting into the real estate investment game? There are a multitude of financial benefits to real estate investing, from growing asset value, to enjoying a reliable cash flow and riding inflation trends to increase home value. However, it’s critical to remember that nothing’s for sure. To be a successful real estate investor, you need to be highly knowledgeable about the housing market, economic trends and investment options. That being said, you can make educated decisions to get yourself in the best position for strong returns.
What gives a home value?
There are a multitude of factors that affect a home’s value, from supply and demand to location and the home’s overall utility. While it’s important to take all these issues into consideration before jumping into real estate investing, there are two factors in particular that first-time investors should pay close attention to: scarcity and depreciation.
How scarcity and depreciation affect real estate investing
Scarcity is the perceived supply of something, meaning a product with unlimited supply has little value. On the flipside, items that are believed to be rare, unique or otherwise in high demand has a much higher value. Depreciation occurs when a property loses value for any reason. These issues are crucial to understanding real estate investing strategy. There are three types of depreciation:
- Physical deterioration: Also known as normal wear-and-tear, physical deterioration is a normal cost of owning a home long-term. This can include a new paint job, roof replacement, pipe repairs, replacing water heater, etc. With proper maintenance, these issues are more preventable and lessen the likelihood of expensive, major repairs.
- Functional obsolescence: Often far more costly, this type of home depreciation occurs when there is something inherently wrong with the home. From inconvenient floor plans to outdated design and architecture, home values can plummet when these issues plague even in those the most desired neighborhoods.
- External obsolescence: Finally, external obsolescence is always considered to be incurable as it involves factors outside the home. When a new airport is built nearby, crime rates rise in the neighborhood, or a local and major employer closes down, home values fall. Unfortunately, these factors are generally out of the homeowner’s control.
With this background knowledge, it’s time to take a look at your personal finances as well as potential locations and cities to invest. Here are some steps to take in preparing for real estate investing:
Assess how much money to invest
Homes are expensive. Probably doesn’t need to be said, right? Take the time to decide how much money you’re willing and able to invest. As a real estate investor, there are a few options available to you on how to use your money:
- Put 20% down on the home’s selling price
- Pay for house in full and avoid extra fees
- Purchase a foreclosure for a fraction of the typical cost
Be sure to strategize your finances before joining an investment group or privately investing so that you’re ready to pounce on property opportunities as soon as they arise.
Determine location for development
There are a number of factors that affect the desirability of a neighborhood, region or city:
- Schools: Neighborhoods with well-ranked schools have a higher desirability rating because parents want the best for their children. In addition, schools with specialized programs in popular industries such as web development tend to raise nearby home prices.
- Development: Cities that are highly developed, such as San Francisco, Seattle or Portland, simply don’t have the space for massive construction sites or urban sprawl like typical suburbs do. This inability to grow quickly increases a home’s property value, allowing it to sell for a higher price.
- Environment: Is the home on a cul-de-sac or next to a busy freeway? Local amenities such as parks, coffee shops, grocery stores, restaurants and other amenities that are within walking distance or a short drive boost desirability and overall home value.
Unsure where to invest? Portland is an ideal choice for novice investors and lifelong real estate gurus. With the city’s highly ranked schools, top walking scores and hidden gems found only in ‘weird’ Portland, this city boasts high real estate demand every year, regardless of how the national economy is doing. Take a closer look at the City of Roses and how your investment portfolio could thrive through real estate investing in Portland.
Analyze home design and quality
In addition to the physical location of the home, the next factor to consider before investing into real estate is to determine the value of the property based on its own unique characteristics. This includes looking at floor plans, quality of materials used, level of craftsmanship and home amenities like a walk-in pantry or modern HVAC system:
- Home design: This includes floor plans and amenities of the home. Open floor plans are a popular choice for encouraging family time, especially In this day and age as parents are usually looking for any opportunity to spend quality time spent together. Amenities such as a large backyard, garage, pool, balconies, energy-saving appliances and more raise a home’s value.
- Home integrity: Integrity has to do with the quality of materials used and the overall craftsmanship of the property. From marble countertops to a leak-proof roof, high-quality materials boost value and price.
What is a real estate investment group?
A real estate group allows investors to own rental properties without the responsibility of being a landlord. One investor can own one property or multiple, but the investment group is in charge of managing all the units. Here are some factors to consider when choosing a real estate group to invest with:
Housing market analysis: Seems like an obvious question, but does this real estate group have a deep understanding of the local and national housing trends? An easy way to determine this is to learn about the company’s history and yearly numbers. Investment groups should give this information freely, and if they refuse to, then it’s time to move onto the next company.
Integrity and transparency: Does your investment group care about the community it’s serving? Is it also trying to improve the neighborhood and city, or is the company just here to make some money? You want to work with an investment group that cares about the area and people because this ensures a level of care that less emotionally-invested groups can’t match.
Why Choose Portland Development Group for real estate investing?
At Portland Development Group, we don’t spread our resources far and wide over Oregon. We focus 100% on Portland, so we have an intimate understanding of local aesthetics – down to the neighborhood – so that our homes are sophisticated additions to some of the most sought-after residential areas in the Pacific Northwest.
To accurately predict the “new home price premium,” or the home prices that buyers are willing to pay, we compare the average sale price of existing homes that are 20 years or more to the average sale price of new construction. Relying on housing market trends, we take a close look at current inventory on the market, pricing trends and building costs.
PDG specializes in new construction single-family residential homes as well as top-to-bottom renovation projects. Organized in 2011, we also offer a 1-year investing option for new investors who are wary of jumping in too quickly.
For more information about Portland Development Group, or to take a look at our current properties, contact us today. As builders, buyers, and investors, we have the tools and expertise you need to be successful as a player in Portland real estate investing.