Evaluating Investment Property
It's important to know how to evaluate real estate investment property before you sign on the dotted line.
Investment property is hot right now. Many entrepreneurs are trying their hand at making money through buying property. But the key to successful real estate investing is knowing if your purchase will work - and will turn a profit. No need to buy a crystal ball for that. Instead, know how to evaluate investment property in order for it to be a successful money making venture for you.
Finding investment property
You won't find investment property just by driving down the street, hoping a neon sign will point out the perfect property. You have to put some effort into the search.
Start with your most convenient tool, the Internet. Using real estate websites, such as www.RealEstate.com, you can search for investment properties from your couch. However, don't limit yourself to just the Internet. Some investment properties, especially in older or more rural areas, may be listed in more traditional sources such as newspapers.
You can also find investment property by getting in your car. Take a Sunday drive through areas that could be a good place to buy investment property. Hunt out for sale by owner signs. Keep a watch out for abandoned properties. The owners just may be open to an offer.
Also, don't shy away from using a real estate agent. You don't need to go-it-alone as a real estate investor. A real estate agent can provide very useful services. S/he can search for the properties for you, but more importantly, your agent can run comps. Once you find an investment property, your agent can pull up comparable properties and their recent sales. This serves as a guide to whether or not this investment property is a good price and if it has profit potential.
Evaluating investment property
Okay, so you found a piece of investment property. Next question, is it a good buy? While no one can predict the future, especially in real estate, there are a few ways to evaluate the property to determine if it will pay off.
First, take a quantitative look at the investment property. What are your expectations of the property as an investment? How do you expect it to perform? You need to define your expectations and check to be sure they're not unrealistic.
Next, look at the property with a qualitative eye. Is this realistic? Do you have the time and commitment necessary for this a project or endeavor? Is this something that you can actually do?
Finally, consider the rate of return. Any investment property is going to require money. You know that you have to actually purchase the property, but keep in mind that the money outflow doesn't stop there. Renovations cost a lot, as well as any upkeep and maintenance. Add up the money that you'll have to put into the investment property and compare that to the expected profits. That gives you the rate of return.
Take time in evaluating the property and be realistic. Know your limitations as far as the time you have to invest, your ability to renovate and manage the property, and your cash flow. You'll need all three of these areas to work in your favor to make an investment property profitable.
