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Important factors to consider before investing in real estate

With housing prices and interest rates at historically low levels, many Detroit residents consider this to be a good time to invest in real estate. However, just because a price seems low doesn't mean that the property will be a worthwhile investment, so prudent potential buyers should consider some of the following factors carefully before making a decision.

Do you know the neighborhood? Location can make a huge difference in whether or not the property gains value over time and becomes a good investment. Some areas have low home prices that will likely remain low over time, and others are experience a temporary lull, it's important to know the difference for an investment property.

Why is the price low? If the house is in need of serious and costly repairs, the low price may not make up for the eventual total costs of owning the home. Some repairs are easy to spot on a walk-through, such as a need for new siding. Others are impossible to discover without a full inspection, such as a troubled foundation, and those are often the most costly to repair.

How is the rental market? If you are investing in the property in order to rent it out for a period of time, you should see what occupancy rates are like in that area. You should also consider whether or not you'll be able to afford the mortgage during months when the property is not rented, since there will likely be some lag time between purchase and occupancy.

Source: Detroit Free Press, "Real Estate investor needs to know the market before buying home," Ilyce Glink and Samuel J. Tamkin, May 13, 2012.

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