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Your Guide to Making a Decision in the Real Estate Market

Updated on January 22, 2016

The real estate market is an exciting place to invest, but as the old saying goes, "a fool and his money are soon parted". There are several things to consider when making a decision in the real estate market:

1. Location.

Obviously. Everybody knows how important location is to the value of real estate. An attractive location affects many of the other factors mentioned below. For instance, a new patio will have a greater return on investment in an attractive neighborhood with scenic views than in a neighborhood of older, neglected homes.

2. Appreciation

As with any investment, the expected appreciation of real estate is an important indicator of future value. Appreciation can be general, such as an average expected increase in home values throughout the country, or specific, such as the expected increase in home values in a certain neighborhood or in a certain price range. Finding real estate with the greatest potential appreciation is a key factor in successful real estate investment.

3. Return on Investment (ROI)

Return on investment, or ROI, determines whether a real estate decision is profitable or not. If a home is purchased for quick resale, then ROI is a critical factor. Will the fees associated with buying and selling a home, when added to construction costs, outweigh the potential gain in value?

4. Intended Use of Property

The intended use of a real estate purchase should be a driving factor in determining what the right "fit" is. Would a particular project be better suited as a rental than as a short-term investment? If the home is intended to be owner-occupied, will it meet the owner's needs now and in the future?

5. Title and Construction Issues

One popular trend in real estate investment is attending real estate auctions to find homes and properties that sell at a fraction of their market value. A smart investor should follow due diligence on such purchases. A thorough inspection by a licensed professional should be performed to hopefully reveal any construction issues. Perhaps even more importantly, a title report should also be performed. This report should uncover any issues related to the title of the property, including tax liens, easements, and other encumbrances. While a hidden mold issue could potential cost thousands of dollars, an unknown lien could be just as devastating.

6. Misinformation

Using online resources such as Zillow can be dangerous when researching real estate. Having the support of a licensed realtor gives the potential real estate investor a much greater assurance that the information they are receiving is accurate.

These are just a few of the considerations to follow when making a decision in the real estate market.

Gennady Barsky is a real estate mogul from NYC.

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