Considering jumping into the real estate investment market? Doing so could result in many rewards but can also produce risks. Fortunately, real estate whiz Othman el Ballouti has some tips.
One factor to pay extra close attention to is taxation. When you buy properties, you’ll typically have to pay annual taxes on those properties. Many people fail to realize how expensive taxes are and how much they can increase when market prices rise. Before investing in a property, you should closely consider the tax implications.
Of course, if you’re renting a property, you can secure income that you can then use to pay down your taxes and other bills. Yet what do you do if you don’t find a renter quickly? Can you afford to pay the taxes and other costs if a house sits vacant for six months?
“Every family should have an emergency fund,” notes Othman el Ballouti. “Property investors also need to set up an emergency fund for their business. Many companies and business efforts fail because the owners didn’t have enough emergency cash to weather a rough patch.”
It’s also wise to look for ways to keep costs low. Properties will wear out over time, and almost every property must be repaired. If you’re skilled with your hands, picking up repair skills is wise.
Even if you usually hire people to fix stuff up, cultivating repair skills is still a good idea. If you need to cut costs, handling some repair work can go a long way. Likewise, if there’s an emergency, say a pipe broke in the home, you can act more quickly, thus preventing further damage.
“I try to make sure I understand at least the basics of anything that could impact my properties,” says Othman el Ballouti. “Knowing how to shut off a water pipe or spotting signs of fire hazards can go a long way. I also monitor taxes, government policies, and everything else. If you’re always prepared, you’re rarely surprised.”
Othman el Ballouti Discusses Risks of Contracting Real Estate Market
Some analysts worry that property markets are peaking. At some point, markets always peak, meaning property values will stagnate or decline. That doesn’t mean that properties will lose a lot of value, although if a bubble has formed, it certainly could hurt prices.
The economy goes through cycles that many economists consider to more or less be “natural.” Economies will expand for a time, and then they’ll typically contract, which can cause prices to cool off. Bubbles are an especially grave concern. Bubbles happen when properties gain too much value too quickly. A home worth $200,000 today might rise to $500,000 by next year. Often, steep price increases are the signs of bubbles forming.
“If you follow the financial news, you’ll hear about the risks of a looming recession pretty much every day,” says Othman el Ballouti. “Someone is always worried that the sky will fall, and eventually, one of these warnings will prove true.”
Currently, most economists believe that recessions are inevitable. The United States enjoyed a long expansionary period following the Great Recession in 2007 and 2008. However, the good times always end at some point, according to modern economic theory.
Real estate prices have traditionally been more resistant to recessions. However, we’ll have to wait and see if that holds during the next recession. If you invest in properties, you’ll want to buy low and sell high.