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  • Writer's pictureFinancial Fortress

5 Factors to Consider Before Investing in Real Estate

Updated: May 9, 2022

Real estate investment, or any type of investment, has got to be one of the biggest financial commitments you will ever make in your lifetime. But, at the same time, it’s also one of the safest investments you can get yourself into in Singapore because the general trend is that it increases in value.

However, just because it’s the safest type of investment, it doesn’t mean that you won’t spend time researching it. As a matter of fact, it should be the opposite.

In any type of investment, it’s important to read up and know what you’re really getting yourself into -- especially if you’re a beginner!

Below, let’s discuss some of the factors you have to look out for before going further into real estate investing.


1. Location of Property

It’s vital to do thorough research on the area of the property because the location determines the profitability of your investment.

For residential properties, you may want to consider its proximity to amenities, green space, and the overall safety and accessibility of the neighbourhood. For commercial properties, it’s wise to think about its proximity to transportation hubs, freeways, and determine rates such as occupancy and taxes.

If you think about the location of your property strategically, you create desirability for your property. In turn, this creates demand and increases prices for your property.

You may consult a local urban planning agency to find out more about the vicinity of your area of interest. By doing this, you will gain information about the long-term area planning in the vicinity. This will eventually help you determine if demand for the property will increase in the future.

2. Your Current Credit Score

Your credit score helps a lender determine your creditworthiness. Your creditworthiness is a number that determines how reliable you are with paying money back, and ultimately affects the terms your lender offers you, as well as your ability to pay for a mortgage.

According to Credit Bureau Singapore, credit rating ranges from 1000-2000. Individuals having 1000 have the highest likelihood of defaulting a payment, while those scoring 2000 have the lowest chance of reaching a delinquency status.

Hence, as far as possible, work on improving an excellent credit score.

There are several ways to do this. You may begin by ensuring that:

  • You pay your credit card bills on time

  • Your credit card balance is low

  • You don’t close unused credit cards (this is actually helpful when calculating your credit score!)

  • You review your credit report regularly to avoid discrepancies

3. Available Monthly Budget for Mortgages

Before buying a property, you need to consider how much you’re willing and able to spare for this expense monthly. This is because the amount you’re planning to spend affects the choices in your real estate ventures.

What does this mean?

When you know how much your budget is, it’ll help you narrow down on certain decisions such as type of property and location. When determining your budget, it would be helpful to also consider hidden expenses such as renovation, mortgages, agencies, and the like.

Most importantly, keep in mind that you should not be depleting your savings completely or dipping into your emergency funds for this. Those funds will help tide you over any unforeseen circumstances while you wait for your profits in your real estate investment.

4. Condition of the Real Estate Market

As with any investments, studying the condition of the real estate market is a must as it fluctuates from time to time. You'll be more likely to avoid risks when you pay close attention to trends.

When you invest, you want to get as much profit with the lowest amount of financial cost possible. Therefore, it may pay off if you keep up with trends such as:

  • Home prices

  • Property inventory

  • New construction

  • Foreclosures

  • Mortgage rates

5. Purpose for Investing

Last but probably most importantly, it’s key that you determine your investment purpose, so you can make better decisions and manage your expectations. Investing simply because you can afford to, or it’s a trend, without a real clarity on purpose may result in financial distress.

Ask yourself this: why are you investing?

There are possible categories that may fit your purpose, such as:

  1. Buying for personal reasons -- to save on rent perhaps?

  2. Buy for renting purposes -- another source of passive regular income but comes with its own downsides (legal disputes, repair work, managing tenants)

  3. Buying and selling to realise quick gains

Defining a clear investment purpose also helps you to narrow down options and focus on what truly suits your needs.

Get Financial Advice for First-time Real Estate Investors

When done right, real estate investments can provide you with a steady flow of passive income, allowing you to live a life you desire without worrying too much about your finances!

However, it is a big financial commitment that can have adverse results if you’re unable to meet the monthly mortgage payments.

If you’re just starting out with exploring real estate investments and need some guidance, get in touch with us!

We’ll connect with our financial advisors who have years of experience in planning investment portfolios. They can help you figure out your financial roadmap and provide you with tips to improve your investment strategy.

Written in collaboration with our financial advisory partners at Virtus Associates.


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