Diving into a real estate investment can be risky if you don’t know what you need from it, especially if you are looking for options in Los Angeles. Here are some factors you should consider beforehand to reduce your chances of a loss:
- Your Personal Income
Real estate investments are financial commitments and these can give more from you than you are able to return. To weather the challenging period between the purchase and the sale of your property, you should have a steady income that can support you and pay for maintenance. A good rule of thumb is determining how much you will be earning in the 6 months following the purchase. If you believe that the amount will remain stable throughout that period of time, then you can invest in real estate without worry.
- Your Credit Score
Depending on whether they are up or down, a few points on your interest rate can mean thousands of dollars spent over the lifespan of your mortgage. That is why you need to ensure your credit score is what you want it to be before applying for one.
As per the FICO Score, 670 to 739 is considered to be a good range and anything beyond that is deemed excellent. A poor credit score falls between 300 and 579 and a fair one falls between 580 and 669. In other words, make sure your score is good or excellent if you want to invest in luxury real estate. Read more here on how to get your free annual credit score report.
- Determine an Appropriate Mortgage Arrangement
Some buyers take out a mortgage on a property as they do some maintenance on it. This applies to flipping and also if you intend to live in the house for a short while before selling it. In such cases, you should go for an adjustable rate mortgage. This has a low initial rate which is applicable for 5 years after which it is increased and adjusted.
Besides this adjustable rate mortgage is more affordable than a fixed rate one so if you are interested in investing in property using the former, flip it before the first adjustment. This will result in a profitable return but if you prefer a long term investment, the fixed rate mortgage will be more appropriate for your needs.
- Property Features
Attractive properties that are located in prime location areas of Los Angeles such as West Los Angeles are naturally more in demand than those that aren’t. However, most investors fail to consider the features that a future buyer will not ignore such as whether the property has an open floor plan, amenities such as a barbecue area, outdoor patio, balconies, a lawn etc.
Similarly, features that detract from the property should either be fixed or replaced with desirable ones to increase its investment value. For example, if the lawn is filled with pests and weeds or if the patio has seen better days, you can put off buyers and even potential tenants. Both would rather consider a property they don’t have to make expensive repairs in after all. Therefore, before investing in a property that you plan on selling or renting out, make sure the property doesn’t have any major issues, or that your budget can accommodate the required maintenance
- Tenant Type
Like property features most real estate investors also fail to take into account the quality of tenants their property will attract before investing. More often than not, they settle with anyone who is capable of paying rent on time; but there is more to renting out a property than just placing an ad.
Before putting a property up for rent, do a thorough background search on the tenants that show interest in it. This includes interviews and background checks that can help you determine whether they will be cooperative while paying rent or may not be able to honor commitments on time.
- The Current Real Estate Market
Housing prices will determine whether your investment in Los Angeles will be lucrative down the line or not. If real estate prices have gone down sharply and your finances are less than ideal for this significant investment, you will not find yourself in a favorable position as an investor. However, even if prices are at an all time high, refrain from buying so you can avoid buying into a bubble that has the potential to burst.
The bottom line is that while a real estate investment offers an impressive high value and risk-return profile, ignoring the above-mentioned factors may make you miss out on benefits.