Investing in real estate involves considering a wide variety of very specific details. Compared with other types of investments, real estate investing involves a somewhat encouraging risk/reward profile, but with relatively little ease of entry and exit. As a licensed real estate broker and avid property investor, it is your job to ensure that the value of the purchased real estate will appreciate, before the deal is closed. Evaluating the expenditure and prospective gains from a desired investment is an essential part of this process.
One of the biggest mistakes a real estate investor can make is to get so excited with the potential returns from a property, that they don’t even look at all the other factors. Sure, it’s awesome that the property is making money. But, if the deal sounds too good to be true, stop and think why the owner is selling it in the first place! Look a little deeper and you can usually find out why.
- The neighborhood is going down and fast. A crime-ridden, unsafe neighborhood causes falling home and rental values. As people start leaving their abodes in these neighborhoods, things get very bad before they can get better. Nobody really wants to live there anymore. This makes it difficult to find tenants for a rental property or sell it at good profit.
- The property is in a state of neglect and disrepair. A thorough home inspection can help you spot the problems in any property and also get a good estimate for how much it is going to cost to bring the property back. While home owners are required by law to reveal any known defects with the house, unfortunately it doesn’t always happen. If the home turns out to be a fixer upper, just make sure you are financially, physically and mentally prepared to deal with all that is going to follow.
- The rental market is saturated. Sometimes it just so happens that an area develops an unusual abundance of rental properties. And due to the simple law of supply and demands, this leads to a sharp drop in the rental rates. The more options potential tenants have, the less they are going to be willing to pay. So make sure you comprehend the situation with competition and know how many new renters will enter the locality in near future.
Numbers are just one part of the equation when it comes to assessing real estate opportunities, and it is important not to get caught up. It is great if the property looks promising, but make sure it is still going to be profitable and generate income a year down the road.
The Last Word: Have an Exit Strategy
An exit strategy can be anything from holding the property for the rest of your life to eventually pass it on to your children. It can also be a quick remodel and then selling it when the market picks up in a couple of years. There are lots of ways you can prepare to exit a real estate investment, but the essential thing is thinking them through from the start.Share this on: