Many types of investments have somewhat of an uncertainty, sometimes due to the fact that the market may suddenly be flooded by a new source of it. There is no way of knowing that there won’t be a new gold, silver, or oil source discovered tomorrow which makes the commodity more common.
One investment not subject to this risk is property. As Will Rogers famously said, “They’re not making any more of it.”
But if you want to purchase property, what kinds should you purchase, and what risks should you avoid? Here are a few factors to keep in mind when purchasing real estate.
Familiarity
One of the first things you should consider when purchasing property is the familiarity you have with the area you are purchasing it in. You are far less likely to run into hurdles if you purchase property in your home state than if you purchase it in Costa Rica. There have been scams in some Latin American and Caribbean countries where land is sold to an American investor, then the local sellers hire squatters to settle the land and the local laws cause title to transfer to them, then the local sellers purchase the land from the squatters, and repeat the process with another unlucky investor.
Price
You should ensure when purchasing property that you don’t spend over your head. A high mortgage can quickly cause a foreclosure if you miss a payment due to unforeseen circumstances such as loss of employment or medical expenses. Make sure that when you purchase a property, you have plenty of excess income left to cover expenses beyond mortgage payments.
Location
An important factor which affects the value of property is where it is located. If you see that there tends to be development in a certain direction—say, north of a city—you might want to purchase land which lies in the path of the development, knowing that in ten years from now someone might be willing to pay a much higher price for that property because it’s in a hot development zone by that time. Land appreciates according to the requirement to use it, so don’t go buying a piece of empty desert with no civilization in site for hundreds of miles, because it is unlikely that enough demand will develop to cause it to appreciate in value.
Zoning
Zoning is just as important a factor as the location demand. If property is zoned as agricultural or environmentally protected, then its location doesn’t mean much at all. A housing or commercial property developer will be unable to use the property because city ordinances will prevent it. Make sure when purchasing a property that you know how it is zoned. You can contact the local municipal government with jurisdiction over the land to find out what uses of the land are permitted by the municipality.
