Common Real Estate Investment Dos and Don’ts
Investing in real estate can be a promising way to make a profit. You have probably heard from a family member, friend, or coworker about property investment, and maybe about their successes or failures. Property investment can be an exciting and interesting process, but without proper knowledge of the fundamentals, you may find yourself in a major financial problem. In this article, we will go over the essential dos and don’ts of property investment.
1. Understand the Laws and Regulations of Japan
If you were interested in investing in property in Japan, the first step to take would be to research about Japan. Japan has many rules that may differ from your home country and could cause problems down the road if you fail to understand them before purchasing property. While the task may sound tedious, taking the time to properly understand specifics about major laws, taxes, and building codes will be beneficial to you as an investor. For information about building code basics in Japan, read our article here
2. Don’t limit yourself to certain markets
It may sound appealing and comfortable to invest in a market you are familiar with, or in a busy area with high population density, such as Tokyo. However, it is not wise to limit yourself to only these types of areas. Popular locations can be harder to initially invest in, as prices are higher and returns are more difficult to generate at times. Many other locations a short ways out of the main spots may also provide a stable, safe investment market that is easier to enter.
3. Know the market you are interested in
If you are looking for a certain type of property, be it commercial or residential, take your time to research that market. It is best to take notice of both past and predicted future trends in the specific market so that you may make a smart decision. If you jump headfirst into a market you are completely unaware about, it is highly likely that you may fail. Looking at many properties will be useful in making an informed choices.
4. Be aware of the financial risks that come with investing
If you choose to pay in cash, you will have to be careful to have plenty of flexibility in case of any potential problems. If you choose to pay by loan, you must be aware of interest rates and how debt will affect you in the future. For more specifics on paying in cash vs. loan, check out our article here
5. Plan your finances
Investment properties may come with potential problems and regular maintenance at some point in time. It is highly advised to set aside 2% of the property value for maintenance each year to be prepared when these problems do arise. It is also important to plan financial goals, keeping in mind that you cannot become rich overnight with investing in property. It is important to focus on both a certain time frame and financial goal when choosing to invest.
6. Don’t over or under renovate
Renovating can add property value and appeal to older units. This can be effective to recruit tenants, but over-renovating can also be a costly mistake. Putting in appliances or furnishings that are costly and luxurious can put your property at risk. If all other units have wood countertops, there is no need to install granite. The unit value will be too high for regular renters who are interested in that specific area. Under-renovating will make your unit seem outdated and have to be put at a low price point. To stay competitive, find a good balance after consulting with professionals.
7. Don’t do everything yourself
It may seem like a great way to save yourself some costs, but managing an entire investment project can be time consuming and risky. Professionals are specialized in pricing units at competitive market values, guiding clients through buying and selling processes, and answering any questions you may be unsure about. Having the security of someone to help you and even manage your process can save you a ton of stress.
8. Don’t wait too long or start too quickly
If you always have thoughts of a better deal being just around the corner, you may be making a big mistake. If you continually put off buying a property, you may lose your best chance or simply elongate the time before you can receive any returns. Nobody likes waiting to make profits, so it is best to start when you have properly researched and can conclude it is a good time to invest. Additionally, it is not smart to jump straight into investing after you have attended your first seminar. It is best to take the time to properly research everything thoroughly before making any decisions. However, don’t procrastinate once you have taken the proper steps.