As tough as an economic crisis might be, it should always be remembered that it also offers great business opportunities for those who are prepared to seize them. Now is the perfect time to get ready: learn about investing, get acquainted with the different types of investment, keep yourself updated with trends in the markets you feel more comfortable with and elaborate your plan. Since there is no avoiding it, you want to make the most out of the crisis.
The current economic crisis is obviously affecting the real estate market as it’s becoming more and more obvious that properties have been overvalued in the last 10 years. While unemployment is growing, banks are also more reluctant to grant loans. Which causes a drop in property sales. In the short run, sellers will either have to lower their prices or not sell at all. Investing in real estate could therefore be a great way of generating cash flow.
I am not talking about buying cheap, waiting for the prices to go up and selling the property trying to make a good profit. It’s called speculation, it’s a method based on the overvaluation of properties and it can become very tricky when a crisis hits the economy (see what I mean?!).
How to generate cash flow with a property? By renting it out. You make money by collecting the rents on a monthly basis. For this strategy to work, you need to balance your income and expenses properly: make sure to invest in a property that you can easily rent out (so that you actually have rental income) and buy at the right price (so that you don’t lose money on your investment, not even at the beginning).
The hardest thing is to estimate your expenses right because it’s very easy to overlook something that, year after year, ends up costing a significant amount of money. Make sure you take into account the taxes you will be liable for as a property buyer and a landlord, the expenses related to maintaining the property, the expenses related to keeping the building in good shape (if you are investing in a flat), potential vacancies and insurance costs.
When you have a pretty good estimate of the rent you will be able to charge and the expenses you will have to support, you can calculate the amount of monthly loan payment you can afford and hence the amount of money you can borrow to buy the property (make sure you take interests into account). This is how you should calculate the price you offer for a property, no matter how much the seller is asking.
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